A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
− As long as that payment is made to the parent charity within
nine months of the end of a particular accounting period, the
company can treat the donation as paid in that accounting
period (rather than the current year).
− This gives a charity-owned company time to calculate its
profits precisely, so that it can donate its entire profit, and
reduce its corporation tax liability to nil.
− If a charity-owned company makes Gift Aid donations of less
than the full amount of the corporation tax profit within ninemonths
of the end of an accounting period, it cannot claim
further tax relief on any remaining profit which it donates
later.
• This nine-month ‘carry-back’ facility applies only to companies
which are wholly owned by one or more charities. This covers:
− subsidiary companies limited by shares where all the ordinary
share capital is owned by charities (or by a company owned
by a charity)
− companies limited by guarantee owned by charities – ie
where their memorandum and articles make it clear that their
beneficiaries are charities or subsidiaries of charities.
• Estimated donations: There is a risk of tax complications if
estimated profits are donated to a charity and they turn out
later to exceed the actual profit. The original donation must be
properly recorded by both the company and the charity. Check
the implications with HMRC guidance or your accountant.
Private sector partnerships: Companies which are owned
jointly by a charity and a separate private company are subject
to different rules. Joint ventures are complicated arrangements
where mistakes in taxation planning could be costly and even
divisive. It is assumed that trading ventures of this complexity will
be subject to professional guidance on taxation arrangements
even before they are set up. But you should be aware that:
• In practice a donation to the charity which is proportionate to
the charity’s shareholding will be treated as profit distribution
and not eligible for tax relief under Gift Aid.
• Such companies are still able to make Gift Aid donations
provided they are not linked to shareholding.
Further information:
For further information and guidance on how to deal with
more complex issues check the HM Revenue and Customs web
site www.hmrc.gov.uk/charities.
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