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CT on "surplus" for "charitable organisation"

Limited by Guarantee. Not a Registered Charity. Previous Accountant unavailable.

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My friend is a Director of a Beekeeping organisation. For various reasons, she is having to submit CT returns herself, having never done it before last year. It has charitable objectives, but is not yet Registered as a charity. It is Limited by Guarantee following the advice of the previous Accountant who has since resigned. I am a retired Accountant but never dealt with Companies (I was mostly a lecturer). 

The organisation provides support, guidance, sharing of equipment, monthly speakers, insurance etc. for its 200 members, who pay an annual membership fee. A portion of the fees goes to a national organisation who provide additional services to members. There are occasional "social events" involving room hire, refreshments etc for which members (and occasional visitors) pay a small fee to cover the costs. Some members "round up" their subs as donations. A small group of members also visit schools to inform pupils about the importance of bees and the local council sometimes contributes to the cost. Most members pay their own travel costs.

Expenses include cost of speakers, purchase or hire of equipment, insurance, room hire - all the usual stuff of a voluntary group. They also hold an annual "honey fayre" where members sell their honey to the public. This has significant costs, including police coverage in the town, road-closure signs etc - but again the local council contributes (it is in a coastal tourist area). Total annual income is about £4,000.

Last year my friend submitted the accounts to HMRC and the Charities Commission, and got a tax bill of £19.65. The organisation had never paid CT before. I have determined that it was calculated on the total "surplus" for the year plus bank interest received. HMRC said this was because the organisation traded with the public - yet did not attempt to identify the "public element" of such activities.  This year the "surplus" is much greater as membership fees were received in full but there was little other expenditure due to Covid restrictions. So using the "surplus" as a basis for the CT bill is going to be a bit of a shock to them. During this year there has been no trading with the public - so it seems wrong to me.

Any advice please? I went online to submit the tax return (never done a CT600 before) but could find no way of adjusting the figures to reduce the tax bill to zero or near enough. The surplus for this year will be used to support activities next year, in schools and the local community.

Is it likely to make a big difference if they become a Registered Charity?

Madmeg

 

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By Paul Crowley
03rd Dec 2021 20:23

Difficult to understand
Limited by guarantee, Not a registered charity but submitting accounts to Charity commission
All a bit confusing
It is common to have limited by guarantee and registered as a charity, but this does seem to have a bit of club membership involvement
Is this really just one organisation?
Members sell their honey, but the club keeps the total?
Or do club members pay a fee and keep the rest?

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By David Ex
03rd Dec 2021 20:30

If you aren’t compliant with the various obligations that apply to a practising accountant, I’m not sure you should be doing what you are doing. You admit that you don’t know what you are doing so surely you see the problem?

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By Matrix
03rd Dec 2021 20:44

Corporation tax generally falls due on trading profits, so would include trading with the public but trading with members should fall under mutual trading.

It would probably be worth paying a professional rather than trying to submit this yourselves.

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By MadMeg
03rd Dec 2021 20:52

Sorry, not Charities Commission (wrong hat on!) but Companies House. The accounts have been submitted there.

It's a single organisation, yes a club, the Honey Fayre raises no income for the organisation except a few donations, but raises awareness within the community. Club members are on hand to answer questions from the public about beekeeping.

I am not a practising accountant, just helping a friend in need. There is no legal requirement that this work be done by a practising accountant - but I am a retired qualified accountant (FCCA) with tax experience - just not in this situation.

If you don't want to help, then don't. I do.

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Replying to MadMeg:
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By Hugo Fair
03rd Dec 2021 21:20

The 'help' that you are (consistently) receiving, but don't want to hear, is that the organisation *needs* professional advice.
This is not a slur on your qualifications, but it does reflect the lack of relevant & practical experience to which you've admitted.

They might get away with convincing a suitable person to donate their advice (not charging for it) ... but they need experiential advice, not random answers gleaned from a public forum where no-one knows sufficient detail to offer comprehensive views.

BTW, at the risk of stating the obvious, the primary objective when submitting a CT600 is not to "find a way of adjusting the figures to reduce the tax bill to zero or near enough".

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Replying to Hugo Fair:
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By David Ex
03rd Dec 2021 22:19

Hugo Fair wrote:

The 'help' that you are (consistently) receiving, but don't want to hear, is that the organisation *needs* professional advice.
This is not a slur on your qualifications, but it does reflect the lack of relevant & practical experience to which you've admitted.

They might get away with convincing a suitable person to donate their advice (not charging for it) ... but they need experiential advice, not random answers gleaned from a public forum where no-one knows sufficient detail to offer comprehensive views.

BTW, at the risk of stating the obvious, the primary objective when submitting a CT600 is not to "find a way of adjusting the figures to reduce the tax bill to zero or near enough".

Well said! The road to hell is paved with good intentions and “having a go” trying to help using a random anonymous Internet forums is absolutely ill advised and, to be blunt, unprofessional.

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Replying to MadMeg:
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By D V Fields
03rd Dec 2021 22:23

From the above I gather the organisation is a registered company (limited by guarantee) with Companies House but not registered with the Charities Commission. Being registered with the Charities Commission is not a blanket exclusion from paying corporation tax despite some belief otherwise. It sounds like the organisation is also not not a Community Amateur Sports Club (CASC) and thus not registered with HMRC which would give potential exemption. Therefore I would start with the question “Why or how is this organisation been able to be exempt from paying corporation on its profits/surplus?” Is it legitimate or simply an oversight? The principle of “mutuality” meaning “you cannot make a profit from yourself” may apply as indicated above if indeed it is true.

You quoted the following in reference to what tax was payable:

HMRC said this was because the organisation traded with the public - yet did not attempt to identify the "public element" of such activities.

Why should HMRC have to identify the public element? That would be the organisation’s requirement if they wanted to justify avoid paying tax.

A useful guide made by England Rugby – who no doubt have experienced the same issues is here:
https://www.englandrugby.com/participation/running-your-club/tax/corpora...

If you want to help the organisation then establishing these facts would be the best starting point, or at least that is how I would approach it.
Hope this helps.

Dave

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By MadMeg
03rd Dec 2021 21:44

Crikey, this is worse than Mumsnet! They also have members who trawl the posts looking for people to ridicule. I ask for a bit of help from what I imagined would be a supportive forum, for a small eco-friendly organisation and the old boys network has kicked in with avengeance.

People with far less experience than me have posted on here and been given far more support.

If I had the relevant experience to which you refer then I wouldn't be asking for your help, would I? I'd be in the same superior position as yourselves, though I hope I'd be a tad more helpful to people with a query - which is quite simple, on what is CT chargeable in such an organisation.

Where is your community spirit?

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Replying to MadMeg:
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By Matrix
03rd Dec 2021 21:53

MadMeg wrote:

on what is CT chargeable in such an organisation.

I already answered this though?

I would try Tax Aid, I don’t think you are going to get someone on here to tell you how to complete a CT600 for free. We do plenty of pro bono work but these kind of organisations are actually more complicated than others.

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Replying to Matrix:
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By Paul Crowley
03rd Dec 2021 22:14

+1
Same here
Trouble is we cannot see the prior comunications with HMRC.
That stuff will be in paper.
HMRC do not do email
Any ordinary accountant in practice would have written to the old accountant and asked for the relevant details before doing anything else

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By Paul Crowley
03rd Dec 2021 22:04

Hugo Fair
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Replying to MadMeg:
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By David Ex
03rd Dec 2021 22:23

MadMeg wrote:

Crikey, this is worse than Mumsnet! They also have members who trawl the posts looking for people to ridicule. I ask for a bit of help from what I imagined would be a supportive forum,

Where is your community spirit?

You joined today and have contributed zero to this forum. You’ve basically slated the long-standing members who have given you good advice.

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By Paul Crowley
03rd Dec 2021 21:52

The tax bill is determined by the CT600
Would I be correct in thinking that there was no tax in prior years because the accountant dealt with it?
Was the last CT600 dealt with by the volunteer?
Had the previous accountant agreed matters with HMRC that the volunteer and you just did not get copies of?

Best thing you can do is ask prior accountant for a copy of his CT600 and ask him what exactly has been agreed.
Definitely do not blame HMRC for the incorrect entries on the CT600
The computer just churns out a calculation based on CT600
My guess is that the tax was paid late as HMRC do not usually send out payslips showing what needs to be paid until the tax is already late

I know how to drive a car but would not choose to advise a car owner how to fix the brakes
I would leave that to someone who knows how to fix brakes
Have either you or volunteer ever submitted a CT600 for a club before?

I suspect that all the beekeepers have accountants. Best would be to get a sympathetic accountant to explain how it all comes together, after seeing all the prior year details on a execution of CT600 submission basis only

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By MadMeg
03rd Dec 2021 22:39

Thank you to those whose replies are helpful and not chastising in nature. The previous accountant was not a professionally-qualified accountant and is not able to assist. Yes, last year's tax was paid late, so we have a letter from HMRC. My friend submitted the figures manually and they accepted them - as an exception.

I do not intend to adjust any figures in order to reduce the tax payable, just need to know how to adjust them on the website input screen so that the calculation is correct - i.e. what to include as income/expenditure and what not to include. I don't believe there should be any tax payable this year at all - there has been no trading with the public, though there is a surplus for the year - due mainly to membership subscriptions.

I don't know why Beekeepers should have accountants - most do it as a hobby and make enough honey for their families and friends to eat.

I will try Taxaid.

Meg

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Replying to MadMeg:
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By Paul Crowley
03rd Dec 2021 23:36

Per earlier posting they are selling to the public
That is trading
I have two beekkeepers as clients
One registered for VAT, as honey is zero rated (Human food) and that person recovers the input VAT
Both declare their income as compliant with Self-assessment

Experience in practice without qualification is the position of my number two and a lot of regular responders on this site.
Most HMRC employees are not members of accountancy or taxation bodies.

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By MadMeg
03rd Dec 2021 23:09

Thanks to Dave for his helpful reply. I have ready the Rugby Club article. My approach is along those lines. To my mind, no tax is payable for the most recent year because there was no trading with anyone and no bank interest earned (well, less than £1!).

I don't expect HMRC to calculate tax for us, but last year it did. It seems to me that it simply took the surplus per the accounts and multiplied it by 19%. My friend did no calculation herself, so they did it for her. But to my mind, there was no external trading that year either, other than £9 of bank interest received.

My issue is that in submitting the figures online for the current year, there seems to be no means of separating out taxable income from non-taxable income (and corresponding expenditure). Or do I just report the taxable elements rather than the figures from the accounts? There is the facility to add back depreciation and claim CAs - as I am sure you all know.

If I adjust the income to report only that that is taxable, it will be zero. This will not agree with what I have submitted to Companies House. So will that cause problems?

Meg

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Replying to MadMeg:
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By lionofludesch
03rd Dec 2021 23:35

Not many companies have the same taxable profits as those reported to Companies House. Indeed, few companies report any profits to Companies House at all in these FRS105 days.

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Replying to lionofludesch:
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By Paul Crowley
04th Dec 2021 01:04

One flew over

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Replying to MadMeg:
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By D V Fields
04th Dec 2021 14:33

You are unable to use CT600E to gain the exemption not being a Charity or CASC. There appears to be no other suitable supplementary page - probably because I believe HMRC would expect the tax return to have eliminated the surplus or deficit element of the mutual trading and expect you to be able to justify any calculations.

You have the option should you wish to explain the differences between the accounting profit and the taxable profit in the published accounts. As always you can (try and) confirm this with HMRC following a two hour hold on the phone; or simply write.
Good luck.

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By MadMeg
04th Dec 2021 00:20

lion, why would that be? Surely profits are profits, whether taxable or not.

Meg

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Replying to MadMeg:
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By Leywood
04th Dec 2021 02:37

***** This alone shows exactly why you should not be doing this.

But there are several other reasons from your comments.

Being qualified does not = capable. It just means you have passed exams. But passing exams, being able to use letters after your name is only part of the picture, as your professional body will not allow you to practice on members of the public without having had relevant experience, under supervision, for good reason.

You are not qualified to undertake the role you are trying to fulfil, so whilst you may wish to help you are actually helping no one to the point it’s the blind leading the blind.

BTW Hmrc did not calculate the prior year tex, someone, like you, on behalf of the organisation, did.

This forum is not a training facility.

You have had several correct responses which you have failed to understand. You would if you undertook some further reading before blindly going doing the rabbit hole of just trying to fill in a form with what you think it should say.

What happened to your ethics? Professional competence for starters.

As an FCCA these ethics should be at the forefront of what you do, which means walking away from this job, after giving the best help you can by referring it on to someone who knows what they are doing already.

As an aside, CT forms have standard box numbers which most Accountants know off by heart. Even your attempts at a description indicate you are trying to use the naff HMRC login to file, so you should at least get hold of the actual instructions for the CT600 if you insist on continuing with this folly.

‘To my mind’ is an irrelevance. Tax law and Accountancy rules govern how it’s done. You should know that. Fair few unknowns here, for a forum to deal with, also makes me wonder if they received any covid grants.

Out of interest are you just now too embarrassed to admit to them that you are not the right kind of accountant to help them?

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Replying to MadMeg:
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By lionofludesch
04th Dec 2021 07:48

MadMeg wrote:

lion, why would that be? Surely profits are profits, whether taxable or not.

Meg

Depreciation's not allowable for tax. Capital Allowances are but they don't show in the accounts.

Basic, basic stuff.

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By MadMeg
04th Dec 2021 00:36

Right, to summarise. I have submitted accounts to Companies House, unadulterated. I am now wanting to submit the CT600 which will determine the amount of CT payable based on the figures I submit. If I deem all of the income to be non-taxable, then income to be entered is zero. If I deem all expenses to be unrelated to taxable income, the total is also zero. Is that therefore what I enter online? Suppose I have expenses that are NOT related to non-taxable income (e.g. capital allowances), do I enter those and produce a loss? The supporting documents on the website imply that I should have a balance sheet that balances - but if I enter the figures as above they bear no relation to any balance sheet.

Meg

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Replying to MadMeg:
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By Hugo Fair
04th Dec 2021 11:12

I've run out of delicate ways of saying it ... so PLEASE take the advice made by all the responses you've received and get someone with relevant competence to do the job.
That way there's every chance of you retaining friendship with your friend.

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Replying to Hugo Fair:
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By Paul Crowley
04th Dec 2021 17:44

This did come over to me as "I am doing it now, tell me the figures to put on the form" and
"I cannot be bothered to find out what the prior pattern was and agreements with HMRC made to date"
And
"Do not accept that HMRC were generous last year by letting volunteer do a paper form. They should do the work of figuring out the trading postion despite being given no information to do it with"

Still probably submitted in the dark and what will be will be

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By MadMeg
04th Dec 2021 19:33

Okay, I have got the message.

I am not daft enough to just do it without being 100% certain I know what I am doing - which I am not, despite having learnt a lot during my ten hours of trawling the HMRC manuals. You were right - it needs an expert. I have done a deal with my local friendly accountant to do it in return for helping him with the upcoming Self-Assessment rush for 31st January!! He was a student of mine 30 years ago!

Thanks to those of you who did not stoop to sarcasm but genuinely tried to help.

Meg

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Replying to MadMeg:
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By Hugo Fair
04th Dec 2021 19:50

I think you'll find that all the responders were genuinely trying to help, even if you detecting a whiff of sarcasm (which I'd describe more as cynicism).

But well done for reaching what sounds like an excellent way forward. Hopefully the organisation will get what it needs - and you've re-established a contact which will I'm sure be to the benefit of all involved.

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By MadMeg
04th Dec 2021 22:06

Call it what you will, Hugo. It was not very welcoming - indeed the opposite. Hey ho, it is sorted now.

Meg

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