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Donating to an individual

Want to give money to child suffering from cancer for overseas treatment

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Client is after giving about £3000 to the family of a child who is in need of specialist treatment in the US

His business is a partnership but of course he wouldn’t be giving the money to an official registered local charity

Any way of getting this through as a business expense?

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15th Sep 2018 20:49

I assume the client is the business owner? In which case of course they can put it through as a business expense, it's their business.

Just make sure you make the add back in the comp.

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to Tim Vane
16th Sep 2018 08:20

Even for a sole trade I'd say it would better classed as drawings. But we were told it's a partnership, so (unless the other partners wish to share the cost) it definitely is.

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15th Sep 2018 21:24

What is your client getting in return?

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15th Sep 2018 23:25

Nothing back in return other than hoping that there’s some way not to have to pay 45% tax on the added back profit

Obviously if it was a registered charity then there’d be gift aid relief available but this is just a family in dire need of help and he wants to do his bit

£3000 to them or nearly half to the tax man first and the balance to them.....

Alas it’s a partnership business not a company or the tax hit would only be 19%

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to youngloch
16th Sep 2018 09:46

This is the point. You are describing a gift.

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16th Sep 2018 05:29

Laudable aim, but he'll have to pay it out of his own money rather than asking the taxman/the rest of us to contribute too...

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16th Sep 2018 05:56

You aren’t thinking straight. There is no “tax hit”. There just isn’t a tax saving. The cost to him of making the donation is £3,000.

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16th Sep 2018 10:00

My opinion was there’d be no possibility of tax relief on a non Gift aided donation but that was better to get the partnership to pay it and then tax on the slice of profit is shared between the partners (in hope that for some the marginal tax rate is lower than 45%)

After talking about the purpose of the donation I was hoping there might have been a .01% hope that such a one off local donation might have found a legitimate way but clearly not as a charitable donation isn’t a charitable donation unless it’s given to a registered charity (or amateur sports club!)

Thank you all for the input - hopefully he’ll still give the little chap the full £3k from the remaining pot after his donation to UK plc via HMRC

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to youngloch
16th Sep 2018 10:02

You wouldn't get tax relief for taking your own child to America. Nor do you for sending someone else's.

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to Tax Dragon
16th Sep 2018 10:13

Alas if you give the money to a charity though and they then spend it on less worthy costs it’s a different matter.....

At least for future searchers though this underlines that unless you’re donating to a registered charity that simple fundraising exercises by individuals are not necessarily charitable donations (unless done under the umbrella of a charity eg London marathon type events)

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to youngloch
16th Sep 2018 11:43

You are still no thinking straight. As there is no tax relief the tax that the partners pay is not affected by one penny by the making of the donation. So the marginal tax rates of the partners are irrelevant.

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to johngroganjga
16th Sep 2018 12:28

Hi John but if the partners paid a donation from the business and it was added back as non-deductible and then the profit shared between them with one partner paying 20% and the other 45% then surely that’s better than the higher earning partner paying from his own funds? This assumes the lower earning partner agreed? I appreciate that if this is were a charitable donation then it’s only Gift Aid relief on the table (in case we had crossed wires)

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By Ruddles
to youngloch
16th Sep 2018 12:35

Jeez. The payment makes no, nada, rien, zilch difference to the taxable profits.

Tax-adjusted profit before ‘donation’ £26k

Tax-adjusted profit after ‘donation’ £26k

And if one of my partners suggested a payment of this sort, s/he’d be told to take it directly to drawings.

All that you are effectively asking is that the other partners agree to share in the donation - that is a matter of personal choice and nothing to do with tax.

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to Ruddles
16th Sep 2018 12:44

I agree chaps it’s an add back so no change to taxable profits !

But if partner A agrees with partner B that they will pay £3k from their business account (and it’s added back) and partner B (a basic rate tax payer) then takes half of that add back then it’s surely better than if Partner A (a highest rate taxpayer) just took the whole add back on his side isn’t it? Eg they’re agreeing that they’ll each effectively give £1500 and that’s how it then affects the tax result.

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to youngloch
16th Sep 2018 12:53

You've got to be yanking our chains. What's your job?

But let's yank back: the gift is irrelevant to tax and tax is irrelevant to the gift. If A and B each wish to gift £1,500, then A and B each gifts £1,500. A's tax is unaffected, so is B's.

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to Tax Dragon
16th Sep 2018 13:19

Oh dear this is getting silly now for something where we’re just exploring if there’s any option anywhere because it’s a sad story lying behind all this with a child dying of cancer and few options.....

So Jim wanted to give £3000 to a family towards their cancer treatment in the US and I said you won’t get tax relief it’s not a charity

He pays tax at 45%

He said he could pay it from his partnership business if the partner agreed

The other partner pays tax at 20% (ignore NI!)

So no one gets tax relief but if the partner agrees it’s something they want to do and they pay from business they each will still get taxed on the taxable profit but then at their own marginal rate. Jim’s profit share is a bit less and the other partners a bit more

Or they don’t put it via the partnership and pay out of their own pocket but we have a situation with these individuals having different marginal rates so if Jim’s profit share goes down he saves 45% and the other partner pays 20%

My advice to them now is to speak to the children’s charities they work with, see if the charity can help the family in any way and then give to the charity and get Gift Aid relief where possible (including the charity) and problem solved!

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to youngloch
16th Sep 2018 13:34

You're right - this has gotten silly. If you write down the numbers on a bit of paper and cannot see John's point in particular, then I would echo Ruddles's remark and suggest that Jim could do with a new advisor. Jim's reward for a laudable gift appears to be that you want to reduce his profit share from which he would make the gift.

For the avoidance of doubt, nothing should be read into my absence of comment on your new advice.

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to youngloch
16th Sep 2018 13:46

Oh hold on... I realise what you mean. Instead of sharing £20k profit £10k/£10k with Jim gifting £3k, you want Jim and partner to share £17k profit £7k/10k with the addback taking it to £8.5k/£11.5k.

Jim has in effect funded his partner's gift and had (a measure of) tax relief for doing so.

There's logic there after all, but it's fraud or as near as dammit - because the reality is that it's Jim made the gift.

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to Tax Dragon
16th Sep 2018 13:59

No one has made the gift they want to know how best to make it which was the whole point of getting feedback!!

I’m heading to the pub chaps I need a pint!

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By Ruddles
to Tax Dragon
16th Sep 2018 14:07

There is of course, absent any provision to the contrary, nothing to stop the partners dividing the profits as they see fit. If Jim is happy for his partner’s capital account to benefit from an increased/prior profit share so be it.

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to Ruddles
16th Sep 2018 14:20

Yes my appeal(?) to fraud was lazy. I couldn't (and can't) be bothered to think harder.

An arrangement whereby I give you funds through the mechanism of a temporary profit adjustment (of a set amount) in order that you might co-fund an expense of mine (out of that increased profit share, might I needlessly add) and do so just for tax advantage - sounds artificial and abusive to me. Most artificial abusive things fall foul of some counteracting tax law or other, statutory or otherwise.

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By Ruddles
to Tax Dragon
16th Sep 2018 16:11

I wouldn’t say it’s artificial or abusive. Provided the partnership agreement permits and the accounts reflect the profit shares partners can share profits as they choose. In this case, assuming that B doesn’t want to lose out, his prior profit share would have to be more than the donation paid by the partnership.

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to Ruddles
16th Sep 2018 17:21

It's not a donation made by the partnership. It's a gift by A funded by A and put through the partnership books as an expense. A deception that relies on sleight of paperwork is still a deception - and, unless you are playing devil's advocate and trying to get me to think on my day off from thinking -
the deception seems to have taken you in.

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By Ruddles
to Tax Dragon
16th Sep 2018 17:39

If I were the accountant I’d be insisting that the payment be taken directly to drawings. The point thereafter though is that the partners are (often) free to divvy up the profits as they see fit. So whether it’s treated as drawings or as a disallowed expense makes sod all difference. One can achieve exactly the same outcome

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to Ruddles
16th Sep 2018 18:48

Of course it's drawings. I said as much at 8.20 this morning. We just have to hope Jim isn't advised by youngloch and then transfers to you, else he'll have a reduced profit share from which to draw (not sod all difference to him after all).

But my view is that, whether or not Gift Aid is available via an intermediary, Jim should be keeping this well clear of the partnership.

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By Ruddles
to Tax Dragon
16th Sep 2018 19:52

If you check the numbers you’ll find that the same end result (tax charges and capital account balances) can be obtained by treating as drawings or as unallowable expenditure which is the point I was making.

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to Ruddles
16th Sep 2018 23:52

I don't think anyone disputed that. The OP's magic trick (so deceptively simple) is to transfer pre-tax profit share instead of post tax drawings. Whether you then add back 50:50 or treat the £3k as paid 50:50 from post tax drawings (getting the same result either way, as you say) doesn't expose the trick.

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By Ruddles
to Tax Dragon
17th Sep 2018 07:47

But what is the issue of giving one partner a prior share of taxable profits before the 50:50 split? Partnerships do it all the time.

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to Ruddles
17th Sep 2018 10:03

Sure, but if there's an arrangement whereby I give you my pre tax profit in return for your post tax one...

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By Ruddles
to Tax Dragon
17th Sep 2018 10:21

Who suggested that? You seem to be missing the point that partners can be free to divide pre-tax profits as they see fit. End of story, no need to consider post-tax profits.

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to Ruddles
17th Sep 2018 11:00

Ruddles wrote:

Who suggested that?

The OP.

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By Ruddles
to Tax Dragon
17th Sep 2018 11:06

We've been talking at cross-purposes, then because that is certainly not what I had envisaged.

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to Ruddles
17th Sep 2018 11:30

But now the light has dawned, do you wish to reconsider some of your comments?

(You know, I'm sure my tone was never quite so abusive-sounding before I was on Aweb... I meant, of course, if we are now singing from the same page, are we in tune?)

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to Tax Dragon
17th Sep 2018 11:47

Its a charitable symphony chaps. Once we were tuned up then it sounded beautiful.

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By Ruddles
to Tax Dragon
17th Sep 2018 11:49

No, I don't want to reconsider my comments.

The payment can be shown as a non-allowable expense of the partnership or it can be shown (more correctly in my view) as drawings of either or both partners.

Whichever route is taken, the partners may be at liberty to divide up the taxable profits as they see fit (provided that the accounts reflect the split) to achieve whatever end-result they seek. Nothing aggressive, nothing abusive.

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to Ruddles
17th Sep 2018 11:37

Crossed wires throughout - the partner is expected to agree that their business may contribute in which case he’d share the donation. If he doesn’t agree it was always going down to the other partners share eg drawings.

This was never intended as a dodge! One is a 45% taxpayer and the other 20% hence they’d each give from their post tax profit. The partners/business regularly make donations and claim Gift Aid but of course this was potentially a charitable donation but not to a charity!

Now of course the suggestion has been made that a charity may help the family fundraise under their umbrella which would then make the donation (which remember hasn’t even been made yet) qualify under Gift Aid to the benefit of all.

The clean way I was looking for to deal with a donation to the individual but with a tax benefit attached

My mistake was to term it ‘business expense’ which set things on an unintended tangent so apologies.

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to youngloch
17th Sep 2018 11:51

It's not often in here that people use the expression "my mistake" - but we're all too keen to point out someone else's (I have to include myself in "we're", sadly). Thank you for your breath of fresh air.

You went further than you admit though, and, though you have backtracked, I'm still interested in Ruddles's technical comment on the magic trick alluded to.

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By Ruddles
to youngloch
17th Sep 2018 12:03

youngloch wrote:
One is a 45% taxpayer and the other 20% hence they’d each give from their post tax profit.

If they were gifting out of their post-tax profits then why on earth would you think that 'sharing' the donation would make one iota of a difference to the tax charge?

This makes all of our previous discussion on the matter redundant and an utter waste of time. I'm happy, though, that a positive solution may have arisen from your query.

With that, I'm out.

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By SXGuy
16th Sep 2018 10:48

The point is, a registered charity is exactly that, registered. They aren't so how can you recognise it as a relief? Otherwise we could all think of thind to 'donate' to in order to save tax.

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16th Sep 2018 11:16

Sorry to strike a negative note, but tell them to make sure that this is a genuine case and that the gift really will help the sick child.
There are so many scams / dishonest people that I would want to be 200% sure!
RM

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to runningmate
16th Sep 2018 12:27

I don’t know the full background story but the business already does a lot with local children’s charities and this seems to have come to their attention via them - I’ve suggested whether, with assurances that the local charity will help this family - that they can perhaps give to that charity and then the family get the help accordingly. That then gets the Gift Aid relief for the partners - achieves the desired end result etc etc

This client isn’t someone who would fall for a scam but it’s a point that was well worth making that’s for sure

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to youngloch
16th Sep 2018 14:25

It might be worth pointing them towards the Bradley Lowery Foundation (charity #11743333) which seems to act as an intermediary in these sorts of appeals. It is very new and hasn't field any accounts yet, but has a lawyer and solicitor as Trustees so I hope there is an element of good governance

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to WhichTyler
16th Sep 2018 16:10

Thank you for responding - that’s exactly the sort of positive useful info I was hoping to find!

Tax fraud is not the clients wish - maximising the donation of himself and potentially his partners is the worthy aim and turning this (not yet made) donation into a legal charity donation whilst helping the family is definitely worth them making enquiries

Update: have spoken to the client this afternoon about this and suggested he looks at the site and speaks to the child’s parents so they can speak to the foundation.

I had a look myself and it seems they fundraise for specific children so it would fit the circumstances perfectly.

Also seems from their T’s and C’s that they use the Gift Aid they benefit from as a charity to cover the admin costs of running the foundation

Something really positive could come out of this (time is not on this child’s side) so thank you - fingers crossed!

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By mumpin
16th Sep 2018 19:41

Its not a Scottish partnership is it?

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to mumpin
16th Sep 2018 20:55

No - I hesitate to ask what the rules are for a Scottish Partnership donating to a registered charity......

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to youngloch
16th Sep 2018 23:53

Glad to see you still have your sense of humour :)

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to Tax Dragon
17th Sep 2018 00:30

The good news is the family are hopefully going to be getting in touch with the Bradley Lowery Foundation now which, if it is the fit that their website suggests, gets them exposure to raise much needed funds and also means my client (and the business partner if they wish) can then both personally donate (point taken) to the charity and get Gift Aid relief (as will the charity) and everyone wins!

They’re not Scottish though (should we get them to relocate) #jokingbeforeyouslaughterme

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