Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Newth Talks Tax - Tax writer of the year John Newth solves your tax questions

by
23rd Oct 2006
Save content
Have you found this content useful? Use the button above to save it to your profile.

**For more of John Newth's exclusive contributions, visit the Newthwire archive***
https://www.accountingweb.co.uk/newthwire

GPs receipt of donations

Knuckles highlighted two transactions regarding a (presumably medical) GPs’ practice in a query dated 25 August 2006. The practice concerned had received donations over the past year. One group of donations was to help pay for the retirement party of the senior partner. It was recognised that the expense was non tax-allowable.

The second group of donations was spent on surgery equipment for which capital allowances will be relevant. How should the donations be treated in the practice accounts?

John R suggested that, assuming that the donations were made on the understanding that they would be spent only on the specific expenditure stated, then it would be correct to set the donations against the particular expenditure. Therefore the (non allowable) cost of the party would be reduced, and the donation would also not be taxed. The donation towards the fixed assets would have the effect of reducing the capital cost and capital allowances claimable.

John states that if no conditions were placed on the use of the donations, then they should be shown as income in the partnership accounts and would be taxed as part of the partnership profits.

Frauke Golding drew attention to the HMRC Schedule E Manual at SE 01460, and the murky situation regarding gifts to employees. Strictly speaking, GPs are not employees, although the government would probably like to think that they were.

I agree with John R's analysis of the situation. The donations towards equipment are, in effect, treated in the same way as a government grant would be.

However, his final point highlights the dangers of including these items in the practice accounts at all. To take a much more extreme case, a doctor might be engaged in medical research, the cost of which would be substantial. An appeal is made. If the amounts received were included in practice accounts, then they would be taxable as income. In such a case, legal advice should be obtained so that a medical charity is established and the appeal moneys are paid into the charity bank account. In the current case, the donations for the leaving party might have been retained and used to pay part of the cost without any entry appearing in the practice accounts at all. Similarly, a separate account could have been opened for the donations towards capital equipment. I suggest that ‘Knuckles’ obtains specialist advice from a ‘medical’ accountant regarding this and future cases.

Hopefully VAT is not an issue, otherwise that would open another ’can of worms’.

Newth Talks Tax - Capital allowances

Newth Talks Tax - October

Newth Talks Tax - September

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.