Corporation Tax

We’ve been a Community Interest Company for 2 years. We have so far been well funded, which is great, but in the last year with covid, we didn’t manage to do as many activities and work as we would normally do (we support families with disabled children through support groups, workshops etc) but have continued to receive donations and funding. This has led to us ending the financial year with a £10,000 surplus, which as a non profit making company we would just leave in the bank account to support families going forward, however we have been lumped with a rather large £2k corporation tax bill as our accountant says this counts as a profit. This feels woefully unfair, and was wondering if anyone knows anything that can be done about it or do we just have to suck it up and pay it. Thank you all.

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Hello @PCFDirector - welcome to the community! It’s great to have you here.

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Sadly I come across this a lot - accountants who don’t really understand how to do accounts for anything other than a traditional, privately owned, for-profit only, type of company.

You should NEVER pay tax on any grant or donation amount - it should be appearing in your accounts as both incoming money, and also as costs due to be paid out against them (reflected in both your profit/loss statement as well as balance sheet).

If the accounts have already been filed, then you’ll have to “suck it up”, but no grant making body or individual making donations would be happy to hear that you’ve used their gifts to pay statutory tax with, meaning you’ll damage your relationship with them in the future unless carefully managed.
If they haven’t been filed and you’ve still time (unless your account also believes in leaving the filing of them until the last minute), then I’d strongly suggest you change to an account who actually understands your business model, and knows how to prepare accounts properly.

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I would agree with Adrian and it depends on what the mix is between grants and other income. You definitely don’t need to pay tax on grants or donations unless a specific service was expected in return for the grant (in which case it should really be considered trading income rather than a grant).

If you have overpaid in one year, you may be able to write this off against future years’ tax bills and this is definitely something you should discuss with your accountant. I also agree with Adrian that it does also sound like your accountant isn’t that familiar with social enterprises and it may be worth looking for one with more experience in this area.

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Thank you both, that is really helpful. The accounts are for 20/21 so we have time to sort it out before having to pay it. I am going to see if I can find another accountant who is better suited to us. One question about traded service. We applied for a £2,000 grant from Tescos. Our bid to them was to put together 200 support packs for families with disabled children in our local area. They took a hell of a long time to respond, so we thought we had been unsuccessful and managed to source the money from a grant elsewhere. Tesco then randomly sent us £1,000 and we are going to use it to put more packs together this year. My question is, is that a traded service, or is a traded service when they give us money and we do something in return for them? Just want to double check (I think it’s the latter but all this tax confusion issue is making me doubt myself!) Thank you, Jacqui

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Hey Jacqui.

It would be classed as a donation rather than a traded service, unless you have some kind of contract to deliver that still relates to that £1k. If there is no contracted activity associated with the money then it should be fine.

I know that an organisation that I work with got in to trouble recently with HMRC because they classed a block grant as a donation when it was designed to deliver specific services, but if that’s not the case here you’ll be grand.

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