I am preparing the tax return for a company who has a commitment to contribute 3% of their profits before tax to charity. My understanding is that whilst payments to charity are deductible for tax purposes, distributions of profits such as the 3% my company is committed to are not. So I think I shouldn't allow this as a deduction for tax purposes. Can anyone confirm?
Also, in order to try to get around this they may suggest that we treat the contribution as a fixed amount to be paid to charity, so it doesn't have the appearance of a % distribution of profit. However, they still haven't paid this over to charity (year end 31.05.14). Again I think that for a charitable contribution to be deducted it has to be paid over at the time and not simply a provision in the accounts. Can anyone help with the rules regarding providing for charitable contributions rather than making actual payment?
Thanks for your help.
Replies (16)
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Don't thnk so
A qualifying payment hasn't been made, so if you were to accrue it in the accounts you would add it back for the tax computation.
Tax Deduction
I think you can get your deduction - but not necessarily in the same year as the profits are earned.
Date of payment for mine.
Apologies for the brevity - it's that time of the year.
I don't see the problem
I 'commit' to give a certain amount to my church each year. Last time I looked, there was nothing that said that such a commitment denied me Gift Aid relief.
By definition, anything that a company gives away is a distribution of its profits (in the widest meaning of the term).
As for timing of the deduction - in the period in which the payment is made.
The 'problem'
The problem is merely the timing of the deduction. I think the OP knows that a deduction is available.
Did you miss this bit, Andy?
So I think I shouldn't allow this as a deduction for tax purposes
No I didn't. I take and took it to mean that the OP's issue with it is that it hasn't been paid before the year-end for which she is preparing the company accounts and tax return. In that context she would be correct to disallow it.
Let me expand, then
My understanding is that whilst payments to charity are deductible for tax purposes, distributions of profits such as the 3% my company is committed to are not. So I think I shouldn't allow this as a deduction for tax purposes.
And then:
Also, in order to try to get around this they may suggest that we treat the contribution as a fixed amount to be paid to charity, so it doesn't have the appearance of a % distribution of profit
It seems clear to me that the initial issue is the character, or description of the payment. I can't find anything in those comments that suggests that timing is the main issue. It is only later that the OP acknowledges that however they try to get around the above [non]issue they would still have to consider the timing.
As with most questions on this site, though, the OP's remarks are open to different interpretations by different readers.
As . . .
. . . are most of the answers.As with most questions on this site, though, the OP's remarks are open to different interpretations by different readers.
My interpretation
My inference was that the OP was reckoning that this is a distribution of profits - and to be treated as a dividend.
Unless the charity actually holds 3% of the shares, I don't agree with this. The donations are allowable in the year that they are paid.
We wait clarification with bated breath.
Really?
My inference was that the OP was reckoning that this is a distribution of profits - and to be treated as a dividend.
Not according to your earlier post.
Sure ?
My inference was that the OP was reckoning that this is a distribution of profits - and to be treated as a dividend.
Not according to your earlier post.
Not sure how you arrive at that conclusion.