I have a client who is going to get an MOD grant to set up a not for profit service providing a service to military personnel. The grant needs to be paid out by 31/3/14 but the client cannot start trading due to other commitments until this summer. She has been advised by HMRC that she will be taxed on the £200k as it will be received in the 13/14 tax year and there will be no expenses at that point. they suggested she forms a limited company. She originally wanted to be a sole trader but as it is not for profit, was worried that her 'wages' would in effect be drawings and hence the venture would show a profit.
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I might take the view that the receipt of the £200,000 does not constitute the start of trading in these circumstances where the only reason the money is being received in this tax year is because the MOD need to spend their budget. However although there are no expenses it sounds like some activity took place to secure the grant.
The HMRC advice suggests that her first set of accounts would be made up to 31/3/14 (or 5/4/14). I would consider the £200K a receipt 'in advance' so that, on the accruals basis, her turnover would be zero as would her expenses (it seems). Depending on profit and other considerations it might be better to make them up to 31/3/15 when the eventual profit would be split between the two tax years, and when estimated figures would go on the 13/14 Tax Return. Presumably your client can time the MOD receipt to 31st March or just before if she wishes to.
If a genuinely not-for-profit structure is required you might consider a company limited by guarantee. Limited is good. Or look at
http://www.resourcecentre.org.uk/information/legal-structures-for-not-fo...
BUT whatever structure you use beware of VAT re grants/contracts, if you haven't already done so. See
http://www.thirdsector.co.uk/go/finance/article/1148793/vat-tribunal-rul...
and
http://www.hmrc.gov.uk/CHARITIES/vat/income.htm#2
If it is deemed a contract the nature of the service might keep it outside VAT.
You/your client might want to check with the VATman and if necessary with the MOD that, if it is deemed a VATable item (in which case a VAT registration will be needed) the MOD will top the 'grant' up to cover the VAT.
JEH