Share this content

Taxation of Grant Income

My client is a CIC involved in activities within local schools, providing support and assistance to young people. Although they do charge fees for some of their work, 75% of their income is in the form of grants from the EC and various charities. They match most of their income with their expenditure, leaving a small surplus of a few thousand pounds.

I am unsure about the treatment of the grant income, whether it is trading income for Corporation Tax purposes. The work they do is altruistic in nature, but the fact they charge for some of their work makes me wonder whether they would be considered to be trading.

If any one has experience in this area I would appreciate some advice

Many thanks


Please login or register to join the discussion.

CICs are the same as a normal company

When it comes to Corporation tax, CICs are exactly the same as a normal company.

The question is whether the grant is capital or revenue. If it's a revenue grant towards specific costs, then you recognise it as trading income and match it agasinst the expenditure it relates to.

Thanks (0)

But is it trading?

A company only pays tax on trading profits and so if it is involved in non-trading activities, ie those that might otherwise be operated by a charity, then, subject to agreement with HMRC surpluses can avoid tax. So, for example, Jame's 2nd link refers to S93 ICTA1988 which only applies if the recipient of the grant is carrying on a trade.

I have dealt with several such "not-for-profit" organisations and the closest example to yours was where one started out being funded by voluntary donations and grants from charitable institutions for its work but which, after a couple of years, started using its expertise and provided services for fees.

In the early days it was easy to keep this minor trading activity (both income and a proportion of expenses) separate and the corporation tax return was based just on that element but, as time passed the trading activities took over and so the whole company is now subject to full tax. It still receives a significant proportion of its income from charities & donations but this income is now contributing towards trading costs and so is taxable.

What might differentiate my client from yours is that it is bound by its Articles to contribute all profits to its NFP activities or charities carrying on similar activities and so, effectively, via charitable donations will not be liable to much tax anyway.

Regardless of this it's got to be worth approaching HMRC with the facts & figures to ask whether you are able to differentiate the 2 activities and treat one as non-trade.


Thanks (0)