Client has a company limited by guarantee where M&A forbid dividends and specify that any surplus on winding up must go to charity. Objects are to promote cultural events in a certain locality. Income is from local authority grant, sponsorship from commercial businesses, event ticket sales and donations via crowd-funding. Is net profit subject to normal corporation tax or are there exemptions for, perhaps, grants and donations?? Does anyone have experience of this?
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If there's trading (sponsorship and ticket sales), there's a potential liability for CT even for registered charities...
I have always assumed that 'not for profit' was a way of inviting income from grants and sponsorship, and not a CT exemption on the occasional low profits.
It depends on what you spend the money on, not where it comes from.
As a charity you don’t pay tax on most of your income and gains if you use it for charitable purposes - this is known as ‘charitable expenditure’.
This includes tax:
on donations
on profits from trading
on rental or investment income, eg bank interest
on profits when you sell or ‘dispose of’ an asset, like property or shares
when you buy property
To get tax relief you must be recognised by HM Revenue and Customs (HMRC).
You must pay tax on any money you don’t use for charitable purposes. This is known as ‘non-charitable expenditure’.
Charitable purposes are defined here:
https://www.gov.uk/government/publications/charitable-purposes/charitabl...
HMRC guidance is a poor substitute for the law. It does depend very much on where it comes from (and in some case how much it is), particularly where the charity isn't a charity at all, but is just required to donate any surplus on a winding up to a charity.
No, but it might apply to be recognized as one if its activities fell within, say, purpose 8 of that list.
This includes tax:
...
on profits from trading
...
... on some (primary purpose) trading...
the usual rules apply, there has to be an actual liability at balance sheet date. You can't just 'accrue to breakeven' (and this isn't a charity)...