Trading general partnership decides to organise an event to raise funds for local charities. Income raised includes donations from local businesses, together with income from selling tickets to the public for the event, sales of raffle tickets etc. The income raised is used to cover the cost of the venue hire and other expenses of running the event. The income remaining after paying all expenses of the event is donated to local charities by the partnership. Is it correct to treat the income as non-taxable, with the expenses non-tax deductible?
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No. The exemption from tax on trading only applies to recognised charities. But gift aid doesnt work for partnerships, only companies and individuals, so gifting away the profits will have to be done by the partners as individuals from their share of the profit.
And if the partnership is vat registered, you'll have to take that into account too.
So a bit of a mare's nest, albeit with good intentions. Tread carefully...
PS if the local charity organises the event and the partners individually donate their time and support, that's a different matter.
Gift Aid does work for partnerships. It's just that, whereas you used to need the signature of only one partner on the GA dec, you now need all partners - but with a small partnership that shouldn't be a problem.
thanks for clarifying. they are still treated as donations by the individual partners, and this may make things more complicated, and create a bad impression, as higher rate relief could then go the partners as individuals
Would the net 'profit' before the donations from this one-off event really be treated as 'trading' income, and therefore taxable?
Yes - why wouldn't it be ?
(Feel free to tell us more ........ )
I don't suppose this money was banked in a separate account, was it ?
The partners won't be able to Gift Aid the donations they collected because it wasn't they who donated the money. The original donors may, of course, make Gift Aid declarations.
Whose crackpot idea was this ?
The residue of the the event belongs to the partners who are organising the event so of course they can donate it if they want under GA
they didnt collect donations, they sold tickets (hence the references to 'trading' above)
Agree it is possibly crackpot though, albeit well intentioned
....they didn't collect donations ...
Au contraire.
OP says they did collect donations - from local businesses.
sorry i missed that
1. I wonder the local business got tickets to the event and advertising space in the programme in return for their donation
2. Donations in support of a trade are trading income
Now if they passed the donations straight on to the charity (acting as an agent), there might be a chance that the donor business could claim it as a taxable deduction, but if Daves Motors Ltd gave a grand to Ambridge Partners who then used it to put on an event, that's not a donation under gift aid or (unless 1 above applies) an allowable business expense
Hence crackpot...
2. Donations in support of a trade are trading income
Well, first we need to establish for whom the donations were intended.
If the charity, I think we can cobble together a case for those just "resting" in the partnership account on their way to the charity.
If the partnership (unlikely, I would've thought), did the trade make a profit, without the donations ? If so, one might be able to argue that Falkirk Ice Rink didn't apply as the donations weren't needed to support the trade.
A lot more information needed to form a judgement but this could've been arranged much more tax efficiently.
I'd probably run with arguing that the transactions were made on a bare trust for the charity's benefit. I wouldn't be confident of winning that argument if HMRC decided to challenge it.