Hi
There is a company limited by guarentee that has a very wide reaching objects statement. It is not a charity.
It has a single member that is a registered charity whos objects are narrower than the subsidiary. The subsidiary has a non-profit distribution clause in its articles that says:
"The income of the company shall not be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by the way of profit to the members of the company"
Does the payment of a donation from the subsidiary to the member charity using corporate gift aid come under the the remit of "dividend bonus or otherwise howsoever by the way of profit" as prescribed in the article.
Obviously its not a dividend or bonus but does "otherwise howsoever by the way of profit" cover donations under gift aid?
it seems to me that a donation is not "by the way of profit" and actually this clause is purely talking about distributions of profit - donations not being a distribution but simply an expense.
but I just didn't like reading this catch all phrase "otherwise howsoever"
Can anyone confirm my understanding
thanks
Replies (4)
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You are right
A donation to the charity should, subject to HMRC's rules, qualify for tax relief in the donor company and will not be regarded as a distribution of profits.
In case you are not aware, and unless things have changed in the past year or two, the benefit of having a subsidiary, rather than a free-standing trading company, is that donations up to 9 months after the company's year end, can be treated as if paid in the financial year. This allows you to do the accounts and to ascertain the taxable profits then makiing the donation to reduce them. With a free-standing trading company it only gets relief for donations actually made in the year.
Hi hairyfingers
No never got an answer, probably because nobody has ever seen it done.
The Companies Act (S829 on) talks about distributions of profits and dividends, ie on shares, are just the usual way to do this.
You are right, in the case of a LBG company, the way in which profit distributions are approved and paid, is exactly the same as with dividends and, with regard to disclosure in the accounts, I would suggest that you just change the word dividend to profit distribution and show it in exactly the same way in the notes.