MTT10220 - Scope: Excluded entities: Definitions of 'non-profit organisation' and 'qualifying non-profit subsidiary'
Source: gov.uk (2025-08-05)


The definitions of non-profit organisation and qualifying non-profit subsidiary are set out in section 234 of Finance (No.2) Act 2023.

Non-profit organisation

An entity is a non-profit organisation if the following conditions are all met:
- it is established and operated in the territory in which it is located exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, or other similar purposes, or is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league, or an organisation operated exclusively for the promotion of social welfare,
- substantially all of the income from the activities it carries out for its non-profit purpose is exempt from income tax in the territory in which it is located,
- there are no shareholders or members with a right to its income or assets,
- the income or assets of the entity cannot be distributed to, or applied for the benefit of, a private person or non-charitable entity, except where either:
- that activity is pursuant to the purpose of the non-profit,
- it is payment or payment in kind to the recipient, or
- it is payment for the fair market value of property acquired by the non-profit,
- when the entity ceases to exist, its assets must become the assets of a non-profit organisation, or governmental entity in the same territory, and
- it does not carry on a trade or business, other than one directly related to the purpose for which it was established.
Qualifying non-profit subsidiary

A group may have entities that are treated as qualifying non-profit subsidiaries in a period if:
- the revenue of the group does not exceed €750 million for that period, disregarding the revenue of members that are non-profit organisations, qualifying service entities, or qualifying exempt income entities, and
- the revenue of members that is not so disregarded constitutes less than 25% of the total revenue of the group.
Where these criteria are met, any entity that is 100% owned by a non-profit organisation (or a combination of non-profit organisations) is a qualifying non-profit subsidiary.

Where the main entity of a permanent establishment meets these criteria, the permanent establishment is also a qualifying non-profit subsidiary.

This preserves the benefit of the gift aid regime by ensuring that non-profits with trading activity are not charged MTT unless the trading activity would meet the revenue threshold by itself.

Example

NPO Group has a non-profit organisation as its ultimate parent. The group contains a number of entities that are classified as qualifying service entities and qualifying exempt income entities.

The total revenue of the group is €900 million.

The total revenue of the group members that are non-profit organisations, qualifying service entities, or qualifying exempt income entities, totalling €650 million, is to be regarded. This leaves a remainder of €250 million.

NPO Group cannot have entities that are treated as qualifying non-profit subsidiaries because:
- although the group has revenue of €250 million when the revenue of the relevant entities has been disregarded, which is less than €750 million,
- the revenue of the members that has not been disregarded (€250 million) is 28% of the total revenue of the group (€900 million), which exceeds the 25% threshold.
Amendment in Finance Act 2025

Section 127 was amended by FA25. This amendment was made retrospective. This guidance page reflects the current version of the legislation.