Does a not-for-profit company pay Corporation Tax?

skmck

Hi all,
I'm a director of a local childcare facility. The company is limited by guarantee not having a spare capital. However, we have not yet applied for charitable status.

Could someone tell me whether we need to pay Corporation Tax on our 'profits'? Technically they are not profits as there are no shareholders. The company was set up to improve the local community by providing a childcare facility.

I don't think it is right that we need to pay tax when we are trying to help the community.

I've looked online but can't find a definitive answer & have also approached our accountant but wanted to ask here too so would appreciate if anyone can help.

silent_spark

As far as I know, yes, if you do not have charitable tax exemption from Revenue, then you need to pay tax on your surplus (otherwise, what would be the point of having an exemption and a (lengthy!) exemption application process?). I've heard of the status being back dated, but I'm not sure if that's done anymore. My experience is based on the arts and culture sector. If you are making a case that you're a charity, then you will also be required to register with the Charities Regulator - which currently has a six month backlog.

skmck

Thanks for that!

Corporation Tax has to be paid then so! We did look at applying for charitable status but yes, the length application process did put us off! But we may have to re-think to reapply!

Thanks again.

silent_spark

skmck wrote: »

Thanks for that!

Corporation Tax has to be paid then so! We did look at applying for charitable status but yes, the length application process did put us off! But we may have to re-think to reapply!

Thanks again.

Someone more knowledgeable than me will be able to better advise, but it's definitely worth starting on those applications if you think you're eligible. They're not too lengthy themselves, but the back and forth with Revenue can take time.

exaisle

skmck wrote: »

Hi all,
I'm a director of a local childcare facility. The company is limited by guarantee not having a spare capital. However, we have not yet applied for charitable status.

Could someone tell me whether we need to pay Corporation Tax on our 'profits'? Technically they are not profits as there are no shareholders. The company was set up to improve the local community by providing a childcare facility.

I don't think it is right that we need to pay tax when we are trying to help the community.

I've looked online but can't find a definitive answer & have also approached our accountant but wanted to ask here too so would appreciate if anyone can help.

The fact that there are no shareholders has nothing to do with whether the company makes a profit or not.

While you're obliged to submit a CT1 (Corporation Tax return) your company MAY (and I've put that in capitals for a reason!) qualify for relief under Section 486C (as a new business) if there are employees who pay PAYE. Ask your accountant about it.

paul71

Ask your accountant to seek a written opinion from a tax inspector. The question to ask is if in the opinion of the inspector you are "engaged in an activity with a view to make a profit", that is the basis of assessment for all income taxes. If you are not engaged in an activity to make profit then there is no basis for assessment.

Lockedout2

paul71 wrote: »

Ask your accountant to seek a written opinion from a tax inspector. The question to ask is if in the opinion of the inspector you are "engaged in an activity with a view to make a profit", that is the basis of assessment for all income taxes. If you are not engaged in an activity to make profit then there is no basis for assessment.

I'd disagree if this is a case of a group of parents forming a company to pool their resources to provide services for their own children then there is no taxable trade, (mutual trading). If they are in fact drawing down funds and then spending them on looking after children then it's a taxable trade in my view.

The real question is: will they need to make a profit i.e. Do they not spend all their income on providing the service?

If they have a building to pay for the company may be a "not-for-profit" but it will still have to generate a profit to pay for it.

paul71

Lockedout2 wrote: »

I'd disagree if this is a case of a group of parents forming a company to pool their resources to provide services for their own children then there is no taxable trade, (mutual trading). If they are in fact drawing down funds and then spending them on looking after children then it's a taxable trade in my view.

The real question is: will they need to make a profit i.e. Do they not spend all their income on providing the service?

If they have a building to pay for the company may be a "not-for-profit" but it will still have to generate a profit to pay for it.

Or surplus as opposed to profit, that is why they need to ask for an opinion, we are not in possession of the facts and all the facts would need to be available to the inspector. Do company articles of association forbid distribution of surplus to the members?