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Can you defer unrestricted grant income?

You can defer grant income if it is for specific future expenditure, but what if it isn't?

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Hi 

I am treasurer of a new organisation which is not a registered charity but is a Community Benefit Society. We have raised £18k from a crowdfunder and that has just been matched by an unexpected extra £18k donation.

As far as I understand we're looking at a significant tax bill at the end of the year. This article explains that grant income can be deferred until it has been spent for it's intended purpose. While we have assigned our own intended purpose, and have stated that to the funders before they donated, neither grants come with anything you could call conditions.

So, what do people think- will we be able to defer this grant income? I will get the 'real' answer from the auditor at the end of the year, but I would like to know now if the answer is going to be no.

Malcolm

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By Wanderer
16th Sep 2020 13:20

Quote:

So, what do people think- will we be able to defer this grant income? I will get the 'real' answer from the auditor at the end of the year, but I would like to know now if the answer is going to be no.

Why not ask the auditor for the 'real' answer now, as presumably they will know the full circumstances which answering here will, inevitably, require a number of assumptions or further questions?
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Replying to Wanderer:
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By Paul Crowley
16th Sep 2020 13:42

Why on Earth are you having an audit?

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Replying to Paul Crowley:
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By Malcolm.Harris
16th Sep 2020 13:49

Hi

Thanks for this

As a bencom we are registered with the FCA (not companies house or charity commission) and they require accounts to be prepared by an auditor. I am doing bookkeeping using xero in advance of them doing this to hopefully save money.

Cannot ask the auditor now as we have not appointed anyone yet as the first year accounts need prepared for is year ending March 2021. We registered before March 2020 but another rule is that we are exempt from providing accounts in the first year.

It's a good point you make- if i can get going appointing someone now (probably a good idea anyway) then I should be able to ask them the question.

Thanks

Malcolm

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Replying to Malcolm.Harris:
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By Paul Crowley
16th Sep 2020 14:04

Not usually an audit
REALLY check the rules
Audits are very expensive.

https://www.uk.coop/sites/default/files/uploads/attachments/society_annu...

If you need an audit appoint now as urgency
Because auditor needs to plan and you need to prepare risk assessments.

An audit is not just give everything to accountant a couple of months after year end

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Replying to Paul Crowley:
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By Malcolm.Harris
16th Sep 2020 14:25

Ok.

Any insights on deferral of grant income?

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Replying to Malcolm.Harris:
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By lionofludesch
16th Sep 2020 14:38

Quote:

Ok.

Any insights on deferral of grant income?

I for one vote no. Assuming you're absolutely entitled to it.

But your auditor will have his own view. If you don't follow it, he may well decide to qualify his report. Which you probably won't want to happen.

You need to discuss it with him.

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Replying to lionofludesch:
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By Malcolm.Harris
16th Sep 2020 14:49

thanks for that- just looking to get an idea of the size of the problem for now so it's useful to know that its not as straightforward as 'you should be able to defer it'.

with other organisations i have always deferred their grants as its always been for specific expenditure so this one has caught me off guard.

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Replying to lionofludesch:
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By WhichTyler
16th Sep 2020 17:51

Largely agreed, though the terms of the crowd funder/fundraising appeal may make a difference. But on the basis that (a) this is a trading company (b) not a charity (c) has received the money and (d) can spend it as they see fit, it is recognisable and taxable on receipt.

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Replying to Malcolm.Harris:
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By Paul Crowley
16th Sep 2020 14:42

Has anyone looked to get charity status with HMRC?

I had a Friendly Soc that qualified, FCA regulated.
If a genuine benefit to community, not for profit then start that process.

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Replying to Paul Crowley:
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By Malcolm.Harris
16th Sep 2020 15:24

Good point. I didn't know that was an option- Coops UK guidance suggests that societies engaged in 'non-business' activities which fail the 'badges of trade ' test arent subject to corporation tax. Guidance doesnt say but i Suspect this is the rule under which we could get charity status, rather than it just being an adjustment to the CT return. Need to find that out. Thanks for the tip!

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By Malcolm.Harris
16th Sep 2020 13:50

-

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By Paul Crowley
16th Sep 2020 13:51

Why on Earth are you having an audit?

Or is it a misuse and you mean accountant?
Answered above

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Replying to Paul Crowley:
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By Malcolm.Harris
16th Sep 2020 13:51

Hi paul. As a bencom we are registered with the FCA (not companies house or charity commission) and they require accounts to be prepared by an auditor. I am doing bookkeeping using xero in advance of them doing this to hopefully save money.

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Replying to Malcolm.Harris:
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By lionofludesch
16th Sep 2020 14:03

Quote:

Hi paul. As a bencom we are registered with the FCA (not companies house or charity commission) and they require accounts to be prepared by an auditor. I am doing bookkeeping using xero in advance of them doing this to hopefully save money.

You'd probably have saved a lot more money by registering with the Charity Commission, either as a charity or a CIO.

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Replying to lionofludesch:
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By Malcolm.Harris
16th Sep 2020 14:11

agree!

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Replying to Malcolm.Harris:
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By lionofludesch
16th Sep 2020 14:33

No need to defer that £18k. You can put it towards the audit fee.

Once you get the bill, you'll probably find that there's enthusiasm for re-registering with the Charity Commission.

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Replying to Malcolm.Harris:
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By Bobbo
16th Sep 2020 14:41

Does section 84 of the CCBS Act 2014 not give you the power to relieve yourself of the audit requirement?

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Replying to Bobbo:
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By Malcolm.Harris
16th Sep 2020 14:50

i'll look into that. for now i'm just looking for peoples insight on whether unrestricted grant income can be deferred. more i think about it, the more i think no.

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By ireallyshouldknowthisbut
16th Sep 2020 15:16

I have several FCA regulation clients who dont need an audit.
Only accounts prepared by a qualified accountant.

I have one that DOES need an audit and it cost them the thick end of £5k to tick what I have done for £1k. The only changes they have made in nearly 10 years have been utterly trivial and seem to be "we need to be seen to be doing something" changes.

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Replying to ireallyshouldknowthisbut:
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By Malcolm.Harris
16th Sep 2020 17:39

Thanks. I feel way may be in the category that does need to but definitely worth challenging.

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Replying to Malcolm.Harris:
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By Paul Crowley
16th Sep 2020 18:17

It is not a challenge
Rules is rules
If your rules/constitution say audit then change the rules.

Page 5 on the guide
Unless you deal in others money you should be clear of audit.

If ever involved in this again Charitable company is always the correct choice.

Why? because any basic bookkeeper or unqualified accountant could put the accounts together. All accountants deal with company accounts every single working day
Get something deliberately different or clever or fashionable and you have volunteered for higher fees.
Even without an audit you still need a Qualified accountant because of the vehicle chosen.
Whoever set it up should have talked to an accountant before setting it up.

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Replying to Paul Crowley:
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By lionofludesch
16th Sep 2020 18:27

Quote:

It is not a challenge
Rules is rules
If your rules/constitution say audit then change the rules.

Page 5 on the guide
Unless you deal in others money you should be clear of audit.

If ever involved in this again Charitable company is always the correct choice.

Why? because any basic bookkeeper or unqualified accountant could put the accounts together. All accountants deal with company accounts every single working day
Get something deliberately different or clever or fashionable and you have volunteered for higher fees.
Even without an audit you still need a Qualified accountant because of the vehicle chosen.
Whoever set it up should have talked to an accountant before setting it up.

Couldn't agree more.

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
16th Sep 2020 18:03

Same here
Several are service charge companies.
A couple needed to change their old fashioned rules, as the audit was self inflicted.

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By lionofludesch
16th Sep 2020 18:29

I never really grasped the advantages of a Community Benefit Society.

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Replying to lionofludesch:
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By Paul Crowley
16th Sep 2020 18:33

There are not any that I am aware of.
But they are new and fashionable
I think the same about CIC
Charities and Charitable companies evertime.

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Replying to Paul Crowley:
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By lionofludesch
16th Sep 2020 18:49

Quote:

There are not any that I am aware of.
But they are new and fashionable
I think the same about CIC
Charities and Charitable companies evertime.

Mmmm - CICs are slightly different. They don't always qualify as charities.

But - I'm not seeing a widespread need for them.

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Replying to lionofludesch:
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By Paul Crowley
17th Sep 2020 07:57

CIC are for traders who want to get grants

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By lionofludesch
17th Sep 2020 08:14

Quote:

CIC are for traders who want to get grants

Classic CIC scenario for me is a few folk buying the village shop for the benefit of the whole village.

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Replying to lionofludesch:
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By paulwakefield1
18th Sep 2020 08:39

Don't knock it till you've tried it. :-)

Our village bought the last pub via a CBS. Worked well - there are quite a few advantages and, as ever, some downsides. Four advantages - easier to raise money, ability to pay tax deductible interest on shares, ability to withdraw shares, reporting requirements not too demanding and cheap now that the FCA have finally got their act together. One person, one vote stops large investors dominating; the fear that they might be put off by that restriction was not borne out in reality. A CIC might also have worked - can't remember now to what extent that was considered and I don't know much about them.

As ever, horses for courses but, in the right circumstance, a CBS is well worth thinking about.

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By Paul Crowley
16th Sep 2020 18:38

Don't feel bad about replies
All accountants worth being called as such want the full picture, and quite often the question turns around.

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By paulwakefield1
17th Sep 2020 09:13

CBS are useful in the right context.

Maybe your donor would prefer to buy shares instead. Some shares can be structured to be effectively donations whilst still being treated as equity but that would probably not be necessary and your standard shares will do. This is one of the classic cases where being one shareholder, one vote helps so that a donor does not gain a significant voting right.

If you have new rules (it sounds as if you do), you should be able to dispense with the audit but the resolution will need to be passed by the shareholders before the end of the year in question and every year thereafter. Does depend on size limits of course.

This is a useful resource; http://communityshares.org.uk/resources/handbook

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By Malcolm.Harris
21st Sep 2020 15:38

Hi All

I've dug into FRS 102. As you can probably tell I'm not an expert but these seem to be the relevant sections...

"PBE34.67 An entity shall recognise receipts of resources from non-exchange transactions as follows: (a) Transactions that do not impose specified future performance-related conditions on the recipient are recognised in income when the resources are received or receivable. (b) Transactions that do impose specified future performance-related conditions on the recipient are recognised in income only when the performance-related conditions are met.

...

34A.5 A ... A mere restriction on the specific purpose for
which funds are to be used does not in itself constitute a performance-related
condition.

34A.6 For funding commitments that are not recognised, it is important that full and
informative disclosures are made of their existence and of the sources of funding for
these unrecognised commitments.

"

If they were government grants it would be possible to use the Accruals model & defer but since they aren't government grants it's not possible. Seems crazy!

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