Has anyone tried / managed for a Community Interest Company to get a dispensation from paying corporation tax? I have looked at a few CIC accounts via Companies House and some CICs have one and others not. They all appear to be trading. According to HMRC all CICs are liable to pay corporation tax despite in my client's case being limited by guarantee and not for profit. Any advice/recommendations would be much appreciated.
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For tax purposes
A CIC is no different from any other company. Except or the fact that a CIC cannot be a not-for-profit company. It may have a restriction on distributing its profits (via the asset lock) but that is not the same as not-for-profit.
It is not really a dispensation
That term actually means something specific in taxation terms and not re Corporation Tax! I would guess what you are referring to is an agreement by HMRC to make a company concessionally dormant for a period- usually for c 5 years before any formal follow up review. But this is effectively negotiated on the basis that it has been established the company is not trading and has no other source of taxable income (or by concessional extension such income is/will be less than £100 pa) and that situation is unlikely to change for the foreseeable future. The procedure is adopted with the proviso that the co has to advise HMRC accordingly if the position does change within the concessional period. Added for clarity- ergo if the CIC is held to be carrying on a trade , it cannot be made concessionally dormant and will need to submit annual returns to HMRC, profitable or not.
The difficulty that I have ...
... is that a CIC is, by definition, profit-making. I suppose it is theoretically possible that a CIC could be formed and then held dormant until trading activity commenced. But given that most CICs are formed with a particular purpose in mind that would have to be very much the exception.
Limited by Guarantee
Limited by guarantee is irrelevant. Any company can be limited by guarantee. It's not exclusively for non-profit making companies.
Example of CIC with dispensation
Hi
Which CIC did you find with the dispensation and did you find any other details about getting a dispensation, I am really interested in following this up
Thanks in advance
Steve
Agree with BKD
It can't be a CIC and a charity. A CIC is some sort of halfway house between a charity and a normal trading company.
Extract from HMRC CTM40145
"Taxation
As a limited company a CIC is liable to CT just like any other company. It will be chargeable on any trading profits (though it will be a question of fact whether or not a particular CIC is trading) and on its investment income and gains.
It is eligible for any reliefs which are available to all companies but there are no CIC specific tax exemptions/reliefs available " -So, pace BKD's comments, HMRC at least, entertain the possibility that a CIC, exceptionally, may not actually be carrying on a trade, which raises the possibility of concessional "dormancy " treatment if inv. income below the de-minimis threshold. However I am sure what is done with "profits/surpluses" per the quoted co Taxation note is irrelevant- it is either carrying on a trade for CT purposes or it isn't. Agree CIC can't also be be a charity. eg extract from gov.uk FAQs re CICs:
"Can a company be both a community interest company and a charity?
No, an organisation must choose whether it wishes to incorporate as a CIC or a charity. CICs are more lightly regulated than charities but do not have the benefit of charitable status, even if their objects are entirely charitable in nature "
Donations to CIC taxable?
I have just gained a CIC client that has 3 different income streams:
1. Motivational talks for which fees are charged - clearly a trade and taxable.
2. Occasional fund raising events where tickets are sold, raffles held etc.
3. Donations from the general public - I assume not taxable as not part of a trade.
Item 2 - Taxable????
CiC/ hrmrc dispensation
hmrc concession/ surely this relates to the cic "distributes all of its profits/surplus to local
community"/ hence they make no profit or surplus for corporation tax purpose as all such
distributions are allowable deductions/ ?