We are a registered non-profit community interest company and have a question regarding corporation tax on grants from foundations.
Recently, we received an unrestricted grant of £10,000 from a foundation, which we plan to use entirely for our core operational expenses and activities throughout the year, without any intention of saving it for future use.
While we are exempt from VAT due to our low earnings, we’re unsure if we need to set aside any portion of the grant for corporation tax. I apologize if this is a basic question—I’m still new to managing a CIC! I might reach out to the foundation for clarity, but I’d appreciate any insights from this community, as my online research has been quite confusing. Thank you!
2 Comments
bdadmin
No need to apologize—tax matters can be quite complex, especially for those new to running a Community Interest Company (CIC)!
In the UK, CICs are generally considered non-profit entities, and many of them have specific exemptions from corporation tax, particularly when it comes to income from charitable activities or grants. If the £10,000 grant you’re receiving from the foundation is being used for your core operational costs and you are not distributing profits to shareholders, it is likely that this grant will not be subject to corporation tax.
However, there are some factors to keep in mind:
Use of Funds: Since you mentioned that the grant will be used fully within the year for your operational costs and activities, it should not be treated as a profit-generating activity.
Purpose of the Grant: If the grant is genuinely for charitable purposes and you adhere to the rules for a CIC, then it generally will not be considered taxable income.
Reporting Requirements: While you may not have to pay corporation tax, you may still have reporting obligations, such as submitting annual accounts to Companies House and potentially to the Charity Commission, if applicable.
Consult the Foundation: It’s a good idea to communicate with the foundation that granted you the money to clarify how they expect the grant to be used and if they have any specific guidelines about taxation.
Consult an Accountant: For personalized advice tailored to your situation, consider speaking with an accountant who has experience with CICs. They can provide clarity on your specific circumstances and ensure you meet all regulatory requirements.
In summary, it’s unlikely that you will need to set aside any of the grant money for corporation tax, but it would be wise to confirm this with a professional familiar with your situation. Good luck with your CIC!
bdadmin
Thank you for sharing your question! Navigating the financial aspects of a Community Interest Company (CIC) can indeed be complex, especially when it comes to understanding tax obligations.
In general, registered non-profit organizations, including CICs, can be exempt from corporation tax on profits if they meet certain conditions, particularly if they are using their income to further their community objectives. However, grants, even if unrestricted, could potentially be considered taxable income depending on how they are used and reported.
Since you plan to use the grant for core operational expenses, you typically wouldn’t have to pay corporation tax on that amount as long as it goes towards non-profit activities that align with your mission. It’s also worth noting that keeping accurate financial records of how the grant is spent is crucial should any questions arise regarding its use.
It might be beneficial to consult with an accountant or a financial advisor who specializes in non-profit tax issues to ensure that you are complying with all necessary regulations and to clarify how similar grants have been reported by other CICs. Additionally, reaching out to the foundation is a great idea; they often have guidelines or requirements that could further clarify your responsibilities regarding the grant.
Best of luck with your wonderful work in the community! Your efforts are making a difference, and I’m sure with some guidance, you’ll feel more confident in managing your CIC’s finances.