CIC donations taxable?

Income or creditor?

Didn't find your answer?

A CIC has received £9k in donations from well-wishers for their educational project to be used for future bursaries for those who cannot afford the cost of participation, and to support the work of the CIC. They plan to run at a break-even position, with more bursaries being donated annually, and are hoping to maintain the £9k float/cushion level for cashflow purposes, whilst being aware that this sum may need to be used. If the CIC venture should come to an end, any monies remaining in the company are to be given to a charity that engages in similar work.
They are reluctant to pay tax on the cushion, as it would not be reclaimable on cessation, or if needed to prevent an other-wise loss. Can it be seen as reasonable to hold the surplus as a creditor, rather than to take it as income?

Replies (5)

Please login or register to join the discussion.

avatar
By WhichTyler
23rd May 2017 06:27

If the donations are made to enable the co to set up as a trader or to continue to trade, they are taxable (see http://www.hmrc.gov.uk/manuals/bimmanual/BIM41810.htm), so on the face of it they are taxable.

Unless they are very lucky, the 'plan to run at a breakeven position' will mean some years of surplus and some years of deficit. The net surplus/deficit is taxable according to normal CT rules.

If they are 'reluctant to pay tax' and are reliant on donations to remain solvent, they should set up a charity

Thanks (0)
By Ruddles
23rd May 2017 09:07

I agree that it will probably be taxable, the question being one of timing. If the funds are to be ear-marked as bursaries to be handed out in the future there is possibly an argument to account for it as deferred income.

On balance, I'd say suck it up, treat it as income when received and pay the tax.

Thanks (0)
Replying to Ruddles:
avatar
By WhichTyler
23rd May 2017 09:22

Quote:

IIf the funds are to be ear-marked as bursaries to be handed out in the future there is possibly an argument to account for it as deferred income.


A couple of things to think about:
1. Are the bursaries going to be 'handed out' or is the CIC just going to offer free places.
2. think about income recognition rules. If the donation is on terms such as 'the funds are to be distributed to deserving people no sooner than 1 April 2020 and are to be held on trust until that date' then you could defer them. If they are 'here's a grand, good luck', then I think they are part of the undifferentiated income of the organisation in the year they are received (as the cic can retain them or spend them at their own discretion). In other words it has no liability to the donor or to future recipients at the balance sheet date, so no creditor.
Thanks (0)
Replying to WhichTyler:
By Ruddles
23rd May 2017 09:32

I agree that it all depends on the exact circumstances - which is why I said "IF the monies are to be ear-marked and handed out ..."

As we have to say far too often on this forum, "it depends"

Thanks (1)
Replying to Ruddles:
avatar
By WhichTyler
23rd May 2017 15:14

True.

What I was trying to highlight is that the earmarking has to be by the donor, not the recipient

Thanks (0)