Whilst charitable Registered Providers can benefit from corporation tax exemption on the vast majority of their income, it is important to recognise that there are circumstances where the exemptions will not apply. In this instance a charitable Registered Provider can find itself with an unexpected corporation tax liability.
Where a charitable Registered Provider looks to plug funding gaps by considering innovative ways to generate income, it should not be assumed that these funds will be exempt from corporation tax. In some cases the charity may be willing to accept there is a tax cost to undertaking the activity; in this case the ability to quantify this cost will be a critical part of any business plan. Alternatively the charity may wish to restructure the arrangements in a tax efficient manner; in this case the potential tax cost will need to be weighed against the costs of restructuring. In either case upfront recognition of the tax position will enable the charity to make an informed decision as to how best to proceed, and will ensure that there are no hidden corporation tax costs.
Do you have a group that includes charitable entities? If so, how would you answer the following questions:
- How confident are you that all of the income/gains received by the charity falls within the available tax exemptions?
- Is the charity looking to undertake new activities? Have the corporation tax implications been considered? Where a potential liability exists has this already been factored into the business plan?
- Is corporation tax considered to be an acceptable cost of any new activity or is restructuring to avoid such a cost considered to be a better option? What are the pros and cons of restructuring?