New Not For Profit Organisation

New Not For Profit Organisation

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Dear All,

We have set up a new sponsorship organisation which is raising money for Army Sport.  Over the past several months we have spoken to many "experts" on TAX, VAT, Incorporation, Charitable status - you name it!  Most advice comes back in the form of "that's an interesting question" or "it depends" or "I don't know!  Seems like we have struggled to find "experts".

Our ultimate aim may be to become a Charity - but we cannot do this at present.  Long story.  So for the foreseeable future our status will be "not for profit".  Having said that, I don't favour the "limited by guarantee" option as we may decide to capitalise the entity via a group of sponsor organisations becoming "founding members".  This leads to the first question:

Q1:  The articles for the company are currently off-the-shelf.  In order to qualify legally as a not-for-profit do we simply need to declare that there will be no dividends and that any profits will be retained or is there more to it than this?

The principle activities of the entity are: 1/ to write sponsorship contracts with companies who wish to sponsor Army sport and 2/ to conduct fund raising activities (a charity Boxing event for example) for the benefit of charities and Army benevolence including Army Sport.  There are a couple of questions relating to these activities:

Q2 For activity 1/  We have already passed the £70k and have applied for VAT registration from the 1st Feb.  For invoices prior to this time will we need to apply VAT retrospectively when we get the reg number?  

Q3 For activity 1/ Although this activity is IMO clearly a trading activity and hence a VATable supply, regarding the treatment of profits - will they be taxable - all profits will either be allocated to the sports before the end of the year (as grants) or retained as profits for future years.

Q4 For Activity 2/ We will be receiving donations - to pass on to Charities and the Army sports.  I am assuming these need to be accounted for as "donations" and separate to trading activities.  Can these donations be gift-aided by donors?

Q5 How do we set up and run a "non-vatable" event for the purpose of raising money for charities (i.e. no VAT on ticket sales or input VAT for provision of services or venues)

Regarding the interface with the Army sports (and there are 43 of them!!) there will be no "commercial" relationship.  Although most of them do not have entities in there own right, are not VAT registered and are too small to qualify as charitable status - they are -in effect- all charities in their own right - with the kind of charitable governance to go with it.  The next question relates to our interface with the sports. In respect of our relationship with the sports we will be "granting" them funds each year.  All sports that participate will be in receipt of funds. The sports on the other hand will host the sponsors at their sporting events and give our organisation the -capacity- to provide the sponsorship opportunities (for example putting a logo on the front of a top).  

Q6 Are there any Tax / Legal / VAT / accounting implications with this relationship?  We are simply giving them cash.  They simply give us capacity.

Replies (9)

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By WhichTyler
28th Jan 2011 18:45

So many questions...

And so little time. When something is this complicated there's usually a better way

Q1. 'In order to qualify legally as a not-for-profit'; afaik there is no such legal status. Have you looked at community interset company status? and remember the conflict of interst: charities are there to benefit the public, business are there to benefit their shareholders.

Q2. VAT registration: if you don't have an entity, who has been doing the invoicing/contracting?

Q3. Profits (after deduction of donations to recognised charities in the year) will be taxable as you say, whether retained or not

Q4. Gift Aid is only available on donations to recognised charities

Q5. You have to be a recognised charity, or owned by one, to exempt VAT on income for fundraising events. BTW you are not exempt from input tax on these events, and you can't recover any input tax charged.

Q6. hard to tell, could be seen as trading income in the hands of the sports org so may give them a problem, depends on the contract.

Srsly it sounds like you have a decent idea and a noble cause, but you need to get the basics right or could end up doing more harm than good. You've spoken to many 'experts', but have you actually paid any of them?

Also you seem to have decided on the outcome you want and are trying to force the rules to fit; how about another, simpler structure? This company could act as professional fundraisers for the recipient charities and is paid a fee or proportion of funds received by the charity, rather than acting as principal without its own charitable status. Just a thought

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DougScott
By Dougscott
28th Jan 2011 20:00

It certainly does depend!

Blimey I can't believe you haven't taken proper advice. If there is one thing you will learn when you become involved in charities, tax, VAT and other not-for-profit entities it can tax the mind of even the best accountants. You need to get yourself a decent specialist charity accountant such as Sayer Vincent, Hays McIntyre, Saffery Champness, etc. You could also try www.acie.org.uk and www.charitycommission.gov.uk for info, but as the previous poster has said this is a complicated area. I've been in it for 30 years and it hasn't got any simpler over the years! Honestly don't try and muddle through.

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By Blobbert
29th Jan 2011 08:50

Advice
We are certainly happy to pay for advice and indeed have. The issue has been finding the right knowledge. We have indeed worked back from the outcomes that we have required. The scheme is i'n fact a simplification of the rather complex reality that exists today. I am using the questions as a kind of exam question to qualify which advisor to appoint. As I understand it a charity can run a VAT free event to raise funds for it's primary purpose. Can
A not for profit?

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By Blobbert
29th Jan 2011 08:54

Charity accountant
My concern about a specified charity accountant is that we are not and don't want to bacon a charity at this point. Do specialist 'not for profit' advisors exist?

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By school63
29th Jan 2011 16:04

Download SORP and talk to inland revenue

Not for profit can be a company limited by guarantee, a CIC, social Enterprise or a charity. Someone will ofcourse tell you that they are Not for profit specialists.

Download the the Charities sorp from the charities commission website and read that. Then talk to inland revenue asking these specific questions. Must warn you that their answers will start with it depends...

You might also want to talk to some organisation that deals with social enterprises. Go for one of the national ones (Sorry I do not have a particular name).

 

Between these three you should come up with most of the answers yourself.

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By WhichTyler
30th Jan 2011 20:55

Re Charity accountant

Any of the firms suggested are used to dealing with businesses, charities, CICs, associations and trading entities, so no problem there.

I'm concerned that you seem to be looking for someone who will give you only the answers you want to hear. You have decided on a mythical 'not for profit' status and now want an accountant who specialises in the area!

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By WhichTyler
30th Jan 2011 21:01

Exam questions

Surely the point of an exam is that the person setting the questions knows the answers!

I don't want to sound harsh, but it does sound that you are trying to re-invent the wheel (given that some army sports raise their own sponsorship already), or at worst, trying to build a car by reading the Road Traffic Acts.

Have you spoken to Army Sports Control Board to see what they suggest?

http://www.aru.org.uk/aru-sponsor-become.htm

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DougScott
By Dougscott
31st Jan 2011 11:16

Take our advice

Blobbert, it sounds like you are the kind of guy that won't listen to advice and/or won't pay a specialist, so there doesn't seem much point any of us trying to give you any further advice!

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Teignmouth
By Paul Scholes
31st Jan 2011 12:07

Too many ifs & buts

Hi - I deal with and have dealt with several NFPs of all shapes and sizes and although some are there for the right reasons most, in my experience, are a result of poor planning over what it is thay want to do long term.

Your dillema is summed up in your 3rd para where you say that your ultimate aim is to become a charity but "for the foreseeable future our status will be "not for profit".  Having said that, I don't favour the "limited by guarantee" option as we may decide to capitalise the entity via a group of sponsor organisations becoming "founding members".

In other words, and others have said, it all sounds a bit contradictory or chicken & egg and so, unless you decide what it is you want to do over say 5 years (regardless of the tax & VAT consequencies) you will never get something that fits all eventualities.

This confusion is probably the reason why you have found it difficult to get "expert" advise and so I think you need to do some more detailed research yourself first to cut out some of the unknowns.

I'm surprised nobody has mentioned HMRC's charities-donors website for this http://www.hmrc.gov.uk/charities-donors/ it's really good and covers tax & VAT for charities & NFPs both as far as receiving & giving is concerned.  You may have already been there but there's good VAT guidance on Sponsorship http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000937&propertyType=document#P28_1913

and Fundraising: http://www.hmrc.gov.uk/charities/vat/fundraising.htm

At the core of "taxable" activities is whether what you receive from someone requires you to do something specific, for their benefit, in return; so even some sponsorship & fundraising activities can be regarded as charitable in nature and therefore not a trading activity.  So are any of the monies being paid to you effectively donations or even grants, with few or no strings attached?  If so they are charitable in nature and should therefore fall outside VAT & tax.

If an activity is trading in nature then the profit is taxable but as long as you make a charitable donation (ie to a registered charity) of the profits before the financial year end no tax is payable.

As far as your constitution is concerned, although I have dealt with NFP activities carried on by standard Ltd Companies you would be unwise to continue unless your prime objects are charitable in nature AND you put restrictions on the distribution of surplus profits or assets on a winding up in the memo & arts.  As I say above this is at the heart of your problem in that it looks like you want your cake & eat it (never quite understood that phrase but you get my drift).  This is not only from the point of view of the taxable status of activities but also from the point of view of potential funders who will not be happy to give to you when your constitution doesn't restrict the use of the money.

From what you say, and as others have mentioned, longer term you might want to look at a CIC which enables a mix of commercial & charitable (for specific groups) but which caps dvidends & asset distributions.  Have a look at the info pack on the regulators' website: http://www.cicregulator.gov.uk/guidance.shtml

One specific question I don't think was answered; if you VAT register from 1 Feb, only invoices raised after that date are VATable.

Finally, unlike most business activities where your natural first port of call may be an accountant, might I suggest that a specialist firm of lawyers should be considered?  In this case I have no hesitation in recommending Bates Wells & Braithwaite.

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