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donations in company accounts

Hi

I'm doing the accounts for a company limited by guarentee. It is not a registered charity but carries out quite a lot of charitable work alongside regular trading. It's income for last financial year was circa £50k of which £12k was donations and grants from individuals at grant making bodies.

when I'm doing the abbreviated financial statements/mangement accounts I'm showing the income from donations and grants as normal but am I correct in saying that this income is not included on the CT600 as turnover? - as it is not trading income. Presumably, if so, then I just highlight this difference between the management accounts in the computations?

sorry I'm new to the concept of anything that isn't standard trading/charity

thanks for your input

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If the company's charitable income is over £5k should they be registering with the Charity Commission? Otherwise, surely the charitable work undertaken is a sideline to the trade and ends up being taxable?

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Is it trading with a view to profit?

If No then not in Corporation Tax - You need to speak to your Inspector.

If Partly then you need to identify that part of its activities which constitute the trade and pay tax on that.

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It is turnover

and it is trading income. It would be were the business a charity - the exeption being there would be no CT to pay.

The fact the company does 'charitable activities' is irrelevent for Corporation tax. Only registered charities get exemption from paying CT on their income.

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Sorry but No

 The HMRC will almost automatically put charities outside tax, unless they suspect trade may be going on inside the charity, which is another set of problems all together.

 

BUT it is quite common for HMRC to agree that mutual trading not for profits organisations are outwith Corporation Tax, regardless of incorporation status, which is a red herring as far as Corporation Tax is concerned. They will then write occasionaly and ask for the situation to be confirmed.

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Chris is right

There are thousands of organisations in the UK operating as NFPs and some, like this one, have dual taxable & non taxable activities.  Many will be voluntary organisations working for social benefit, governed by volunteers with governing documents (eg Memo of Assos'n) that restrict profit distribution and where any capital remaining at time of closure gets passed on to a similar organisation or charity.

So even if such an organisation gives all the appearance of being a charity it is not unless it calls itself one or holds itself out to be one, only then will the £5K registration provision kick in.  So whenever they operate, and whenever you talk about them, best not use the "Charity" word.

Pure donations and voluntary grants to assist with its NFP activites are outside taxation (as are the direct or indirect expenses needed to raise it or run that part of the organisation).  In order to differentiate them from trading income I would avoid calling donations and voluntarty grants turnover, they are other operating income.

So when I prepare accounts for such an organisation the CT600 declares just the trading profit and the comps start with profit per accounts which is then adjusted to remove non-trading income and non-trading expenditure to arrive at trading profit.

 

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So to clarify.....

thanks for your responses.

So to summarise:

- The donations will not show on the CT600, they will be adjusted out of the profits before tax as part of the computations - Just as long as these donations were not instrumental to the generating of "trading with a view to a profit" then they are not taxable income.

- Therefore as long as the company is happy to not get the benefits of being a charity (rates relief, gift aid etc) then they do not need to register with charity commission even though they are above the £5k threshold - as any "charitable" income would be non taxable as it is not trading income and therefore not on the CT600.

Have I got it????

thanks

Martin

 

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Yes

That's always been my understanding and how I have dealt in practice with NFPs for a number of years now.

You have to be careful though that the donations and grants are voluntary, ie there can be no obligation on the company's part to provide anything to the donor/grantor in return other than details of the outcomes their donation/grant generated in the particular NFP activity.  It's always worth checking with the documents that the donors/grantors provide as it's usually obvious from them which side of the fence the money sits.

Out of interest whet area do they operate in?  

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What are the grants for?

 Why is this trading company eligioble for Grants? Are you sure they are not payment for services?

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Definately Grants.

thanks again for your very helpful comments.

To answer Pauls question - The company operates in Leeds, West Yorkshire.

To answer Chris's question.  Yes they are definately grants and are not in return for services.  It's does seem a strange one in that the company has trading income from hiring out event equipment, marquees, amplifiers etc but then got a grant from the Hesco Bastion foundation to fit out an old rent office and put some computers in to provide free internet access ot the local residents.  the rent office is given free by the local housing association.

Hesco Bastion Foundation is a registered charity so I would normally think they should not give grants to a trading company, but within the articles of the company I'm dealing with their is significant restriction on how much the directors can be paid and obviously there is no shares for dividends. Hesco Bastion presumably felt at ease to give the funds and trust they would be spent on "charitable" aims and not trading ,profit making aims like the events hire.

 

cheers!

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Not that unusual

Hi HF, I wasn't clear, I meant what sort of NFP activities do they get involved with, but you've answered.

One of my clients operates on both sides of the fence like this obtaining tens of thousands at a time from charitable foundations and companies as well as making even more from trading activities, all with the prime object of lessening environmental impact around the world.

Increasingly Foundations and other funders are looking at the efficacy of their money and this might not always lead them to donate to a registered charity, especially if there is none that operates in the particular sector or in the geographical area.  The reality is that having the word Charity on your letterhead doesn't guarantee that you'll make better use of the money.

 

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