Dear all, As a Coastal Community Team we're really struggling to get to grips with what sort of entity we should be. We've been operating as an "unincorporated organisation" for two years now and that' s sort of working. We applied to become a CIO but have been rejected twice by the Charities Commision on the basis that not all of our objects are truly charitable - fair enough but we're now looking at CIC as a possibility and got ourselves in all sort of a muddle about the tax situation, despite taking advice from "experts" and local charity support groups.
The confusion seems to arise around what HMRC consider to be 'trading'. So, for example, let's say we apply for and are given a grant for £10k. If it or a portion of it sits in our accounts at the end of the tax year then, in theory at least, we would be liable to pay Corporation Tax - that seems to be the opinion of our accountant but, surely that can't be right or am I missing something?
Yes, that's correct. Only claim as much of your grant as you are in a position to spend.
However, I should add, if your £10k grant is for capital expenditure (buildings or equipment that would be accounted for as a depreciation expense over their useful life) then it may not be considered a trading receipt.
Thanks James for the quick response. I had assumed this must be the case so, what we're really saying is that a CIC (or any entity other than a registered charity) really needs to live hand-to-mouth and aim to keep no reserves? Our group has some regular outgoings, not a great deal - around £140 a month - so we could find ourselves in April not having sufficient funds to meet that. Is the reality that CICs find themselves 'creative' ways to avoid this situation?
I do know that CICs can allocate the grant in such a way as for any balance held over into a new tax year will NOT be liable to tax, im not 100% sure of the detail but think grants received in advance of the expenditure to which the grant related can be recognised as a creditor rather than as income.
We've had this question a few times, definitely ways to achieve it but you'll need to talk to an accountant, here's a previous thread: