Limited by Guarantee

Limited by Guarantee

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I have been approached by a potential client that has set up Company Limited by Guarantee with an exemption from using the word limited. It is not a charity but is a not for profit organisation. The Sole director is to take £7k per annum as a salary which covers her basic living expenses and no more.

The industry is that of psychic and spiritual advice - not something I am particularly au faix with.

Anyhow, one of my main queries is firstly, is there any corporation tax to pay on excess income each year. It will be retained by the Company and used for future projects etc. so I am assuming no. There will obviously be no distributions as there are no shareholders.

One other issue, possibly related to the above is the issue of income. The main sources are to be - general donations, people who just volunteer money to help the foundation benefit others. 

One to one sessions with the director - it is advertised as being at the request of a donation; however, does stress that the minimum donation is £100. This is where I have a slight issue - how can it be a proper donation if you are specifiying an amount? Is this normal.

Are there different tax treatments for trading and donations and how do you define between the two.

TBH I probably won't take the client on as I don't have full knowledge but it would be useful to know, particularly if I am over complicating the issue!

Replies (6)

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By Chris Smail
16th Sep 2011 12:39

Its taxable!

If  it is not a charity and not mutual trading it is a trade, sorry.

 

PS mutual trading is when a social club only trades with its members, as soon as you get income from non members its taxable.

Thanks (1)
Teignmouth
By Paul Scholes
16th Sep 2011 14:17

Check the Articles

Typically LBG companies are set up with restrictions built into their articles prohibing distributions of revenue or capital to its members.  If such is the case and she can show "public benefit" type work then she may be able to apportion the activities of the company between the personal service stuff and the public benefit stuff.

I agree that with her charging for her services (whether called a donation or not) this is a commercial activity but general donations, as long as they could be shown to benefitting her non-profit stuff, might be regarded as non-trading.  Obviously all of this would be down to HMRC to agree and in the cases like this I've dealt with I always write to the Inspector up front, setting out what they do and how I plan to deal with it, to get their view.

On thing to watch out for however on unsolicited general donations is that if they are used to subsidise the trading side they will be treated as trading income.

If the Articles show no restriction then the above split treatment is very difficult to achieve.

By the way, in theory, even if a company has no shares it can still, subject to its Articles, make a revenue distribution to its members.

Thanks (1)
PAH Accounting Devizes Wiltshire
By Phil Hendy
16th Sep 2011 15:45

Thanks guys

I think that helps, I am sure that it is taxable too.

What about if donations are suggested rather than a minimum. If they were not to take on a client who wouldn't pay then would this disregard it as a donation.

 

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the sea otter
By memyself-eye
16th Sep 2011 16:20

I 'suggest' my clients make a donation

Or I would if I thought that by some miracle it wasn't taxable, but it is. So is theirs.

I'm consatntly amazed at people who form CIC's, G'tee companies etc and then imagine like the queen they are exempt from CT.

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Teignmouth
By Paul Scholes
16th Sep 2011 17:00

I wouldn't try it unless there's something else to back it up

Hi again - you really have to get from her why she thinks she is a "not for profit" organisation, ie how the activities will benefit the community or public and how she goes about doing them.  From what you say, and being generous, it might be as a social enterprise which are taxable, but can mitigate it by making charitable donations.

Basically, if in doubt, it's taxable.

For some guidance have a look at:  BIM41810

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By Chris Smail
19th Sep 2011 06:03

She needs a trading Subsidiary

If she can dress up her spiritual stuff as a charity and get it past the commission she could then put her trading in a subsid, take her salary and gift the surplus up to the charity. Thats the only way to  avoid paying her dues to society.

Is it worth the admin?

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