I have just gained a CIC client that has 3 different income streams:
1. Motivational talks for which fees are charged - clearly a trade and taxable
2. Donations from the general public - I assume not taxable as not part of a trade
3. Occasional fund rasing events where tickets are sold, raffles held etc.
Is item 3 taxable income?
Replies (28)
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For VAT
Donations carry no VAT - no service supplied.
Raffles - exempt income - might give you a partial exemption problem, in theory at least.
on thne grounds that....
It's not a charity!
My (non CIC) company receives 'donations' from our clients - for which we send a thank you letter called an 'invoice'
For the umpteenth time CIC's are a Gordon Brown inspired Labour party, dog's breakfast of an attempt at forming companies with some spurious 'charitable' intention - maybe.
They are not charities. all their income is taxable.
Quite right too.
Disagree
Donations aren't trading.
"Donations" for work you do and for which you send an invoice aren't donations. As you full well realise by putting the quote marks around it.
I'd point you towards the HMRC guidance on sportsmen's testimonials. There's trading (selling ties, brochures, hospitality at dinners). But auctioning something that's been donated to the Testimonial Fund is not trading. HMRC examples - not stuff I've just made up off the top of my head.
Donations aren't trading
Good to know. I'll stop invoicing and ask people to make a donation instead.
@liondefleusch &OP
Plenty to get stuck into here: http://www.hmrc.gov.uk/manuals/bimmanual/BIM41810.htm
especially the 4th bullet point.
BIM41810
Is clear on point 4. Taxable
Point one states that a voluntary payment that can be attached to a pre-existing source is taxable. How can you argue that not the case when there is chargeable source of income-the motivational talks.
Perhaps
How the grant is released depends on whether the grant conditions have been satisified, not on whether the expenditure has been incurred. They are also now bidding for lottery funding, which I guess will come with a restriction on how it can be used. I assume this income needs to be held as deferred and released as the expenditure is incurred, thus not incurring a tax liability on this receipt?
Genuine donations
If they're genuine donations from people who don't receive a service, they're not taxable.
If they're a bit like overpayments from service users - as in Falkirk Ice Rink - they're taxable.
You'll need to look at it case by case.
Service users
Does that mean, Lion, that I should stop taxing revenue grants awarded to my clients on the basis that the grantor doesn't receive any service from the company?
Expenditure, not income
It is more likely that the expenditure is not related to a taxable income and the expenditure does not qualify as a deduction. This is almost exactly the same in effect as the grant being taxable but the difference is important. Does that mean, Lion, that I should stop taxing revenue grants awarded to my clients on the basis that the grantor doesn't receive any service from the company?
Not section 979
You do not need to look any further through CTA 2009 than section 46. Neileg seems rather to have hit the nail on its head.
Either the donation is:
a revenue receipt and is used to fund a corresponding amount of tax deductible revenue expenditure,a capital receipt and is used to fund a corresponding amount of capital expenditure, oran effective subsidy which is netted off against the tax deductible capital expenditure.
Why stop at section 46?
Section 46 tells us how to calculate the taxable profits of a trade. It says nothing about other sources of taxable income - of which a company may have many.
Given that most donations received by a company will fall within the first of the 3 descriptions above, I take it that you agree, Portia, that donations received by a company will indeed be taxable under s979 if not as trading receipts.
Thank you.
Because section 46 is the proper place to stop
There seems to only be one activity (item 1) and items 2 and 3 fund that activity. I would have thought that any accountant worth his salt would include those receipts within the accounts pertaining to that activity.
The notion that these receipts are derived from some other source is preposterous. Having determined how we calculate the profits of ours single activity, we have our answer.
Not a problem
If we cannot read past s46 because the income relates to the trading activity then it is by definition taxable as such. If it's not trading income then it has to be, by definition, something else. If that something else cannot be determined, that is where s979 would kick in.
This discussion has highlighted one of the downsides of operating as a company. It is far easier for an individual to receive an unsolicited, non-taxable, receipt in a personal capacity than it is for a company. The general rule is that income of a company is taxable - unless there is something that says that it isn't. Those that insist that the donations in this case would not be taxable - I'd be grateful if you would point to the specific piece of legislation that says that such income of a trading company is not taxable.
If you're happy - as you appear to be, Portia - that the income is taxable as trading income I'm not going to disagree with you.
Only one source
Are we seriously saying that companies can only have one source of income ?
Nobody is saying that companies generally can only have one source of income.
I said, and I said it quite clearly, I think, that this company, as a matter of fact, has only one activity, and all of its income has, as a matter of fact, that single activity as its source.
However, as Ruddles observes, once income has a source, then unless a specific exemption applies, there are mop up provisions to tax it for both individuals (ITTOIA 2005, section 687) and companies (CTA 2009, section 979)
Insufficient
In my opinion, there's not enough information in the OP to draw such a conclusion.