Are government grants to CICs subject to Corp. Tax

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I have a client who is a CIC.  They have received a large grant from the Community Renewal Fund from our local combined authority.

They have been in touch today in a bit of a panic because someone has mentioned that they are subject to the normal corporation tax rules and that the grant will be taxed.  The panic has arisen due to the value of the grant and a potential large tax bill.

Does anyone know about this? it seems wrong that they give the grant and then tax it.  I've not had a CIC who's received a grant before so any help gratefully received.

Many thanks

Replies (18)

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By IWantToLearn
10th Jun 2022 18:32

Jo Wood wrote:

I have a client who is a CIC.  They have received a large grant from the Community Renewal Fund from our local combined authority.

They have been in touch today in a bit of a panic because someone has mentioned that they are subject to the normal corporation tax rules and that the grant will be taxed.  The panic has arisen due to the value of the grant and a potential large tax bill.

Does anyone know about this? it seems wrong that they give the grant and then tax it.  I've not had a CIC who's received a grant before so any help gratefully received.

Many thanks

Hi Jo,

CICs are taxed as any other company.

In response to the "are the government grants taxable", yes. Furlough grants are similar, paid from the government and also taxed, albeit offset by payroll costs.

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm40145

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

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By Hugo Fair
10th Jun 2022 19:08

"it seems wrong that they give the grant and then tax it" ... why does it seem wrong (given that the grant giver and the tax authority aren't the same body)?
By default all grants are taxable unless there is a specific exemption (for that type of grant or that type of recipient/purpose).

I don't deal with CICs, but it sounds like you need to talk to someone who does.

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Replying to Hugo Fair:
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By Paul Crowley
10th Jun 2022 20:11

CICs are not charities, but the people running then seem to think that they should be treated like one.
Better to have a charity registered company limited by guarantee

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Replying to Paul Crowley:
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By DKB-Sheffield
10th Jun 2022 20:42

Paul Crowley wrote:

CICs are not charities, but the people running then seem to think that they should be treated like one.
Better to have a charity registered company limited by guarantee

Ah, but then the 'trustees' may not be able to be 'remunerated'.

There are clear reasons why some people set up CICs. The fact it falls within the scope of CT being often overlooked.

I had a long conversation the director of a (former) CIC client a few years back who had a small CT bill. "Why do we have to pay tax - we're a charity?" they asked. My answer after 1 minute was the same answer I gave 2 hours later (and many times in between) was "But, you're not though, are you?!". The director was dead set on not becoming a charity as they couldn't be paid for acting as a trustee.

A few years on, I note a charity is now operating under a similar name. The 'director' is not a trustee.

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Replying to DKB-Sheffield:
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By Paul Crowley
13th Jun 2022 10:57

Exactly it
Charities are tax free because they are not trades

CICs can be the directors income stream, just with a restriction on dividends

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Replying to Paul Crowley:
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By Jo Wood
13th Jun 2022 14:34

Hi Paul,

Dividends is another area which I have been trying to delve into. I understand that they can only take up to 35% of the profits in dividends but how does that work in relation to the £2k tax free figure, do they get the full allowance or is it 35% of the allowance?

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Replying to Jo Wood:
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By DKB-Sheffield
13th Jun 2022 14:55

Isn't the restriction is on the level the of profits the CIC can distribute? Why would that then affect the personal taxation of the individuals?

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Replying to Jo Wood:
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By Paul Crowley
13th Jun 2022 15:02

This sounds much more like a trade by raising the idea of dividends
Not need seen any CIC pay a dividend
But a dividend is a dividend and the member sorts out the dividend on their tax return if needed to as each member has the £2,000 pa dividend allowance.

Grants from donor need to be paid out in most circumstances.
Dividends are taking out after tax profits, not costs so grant would appear not to be expended
I think this is go back to basics and figure out what rules apply as set by the donor.

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Replying to Jo Wood:
RLI
By lionofludesch
13th Jun 2022 15:20

Jo Wood wrote:

Hi Paul,

Dividends is another area which I have been trying to delve into. I understand that they can only take up to 35% of the profits in dividends but how does that work in relation to the £2k tax free figure, do they get the full allowance or is it 35% of the allowance?

As DKB says, you're confusing two issues here.

And as Paul says, suddenly, it looks like the directors and shareholders are in it for the profits they can make.

Which makes me wonder how valid the CIC concept is to this enterprise.

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By DKB-Sheffield
10th Jun 2022 20:55

To be honest, I've never really known a CIC make significant profits YOY. I would guess there may be losses c/fwd? Will those funds be used in the next 12 months, resulting in a carried-back loss next year? If the funds are just going to increase longer-term reserves... it's a profit isn't it?

I'm not certain of the conditions of the UKCRF - and I'm not going to read up on it. However, is it restricted in any way? What are the conditions? I'd be surprised to learn that a grant for 'supporting people and communities' was not intended to be 'utilised' in the imminent future?! Wouldn't that make it 'tax neutral' (within - say 12 months)?

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Replying to DKB-Sheffield:
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By Hugo Fair
10th Jun 2022 21:03

Spot on (about the conditions as I understand them).

And where OP's client says ".. and that the grant will be taxed" - they might feel a little better if they thought of it as ".. and that the grant will be taxable"!

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By lionofludesch
11th Jun 2022 07:33

As implied above, the grant won't be taxed if the money is spent.

Which is the point of the grant, really. The government don't give grants out to enrich CICs. They want them to provide a service.

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By Winnie Wiggleroom
11th Jun 2022 09:36

To somewhat repeat what has already been said, we deal with a number of CICs and they all think they are charities which they are not.

But in most cases most of the money is spent quickly and therefore CT is low, and over the lifetime of the CIC the tax will probably be zero. Discipline about timing of spending is essential to avoid too much tax having to be paid and then reclaimed.

You can also ask HMRC to exempt them, but unless you have an extremely compelling case HMRC will say no.

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By Crouchy
11th Jun 2022 11:20

God bless CIC's, they always get in flap when they think they have tax to pay

look at the terms of the grant, they often cover a couple of years and income can be deferred to help the tax position

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By Tax Dragon
11th Jun 2022 13:44

I think the answer is far less automatic than is indicated by the responses so far.

How was the CIC funded before it received the grant?

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Replying to Tax Dragon:
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By Tax Dragon
13th Jun 2022 15:29

OP mentions dividends. That makes me think it's highly likely that the answer is as automatic as is indicated in everyone else's responses.

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By Jo Wood
13th Jun 2022 14:30

Hi everyone,

Thank you for all your help. Hopefully we'll be able to off-set the majority of it against the allowable expenses and there'll be little, if any, surplus grant to pay tax on.

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Replying to Jo Wood:
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By Hugo Fair
13th Jun 2022 16:35

Seriously, someone needs to take a close look at the terms of the grant - which can often include an automatic demand for repayment of any grant funds not spent by a specific date.

All this talk of CT and dividends sounds like the tail wagging the dog, which is not a good look for a CIC.

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