The Department of Health in England has been quick to point that that the transfer of NHS pensions to a 'Health-care providing Social Enterprise' does not set a new precedent for a uniform transfer of NHS pensions.
Over 1,000 employees have moved from the NHS to Anglican Community Enterprise and importantly, their NHS pensions have moved too. Many NHS employees have in the past been very reluctant to make the switch due to the fear that they would lose their pensions if they took up employment with such Government backed social enterprise initiatives.
The Government however finds itself in an awkward position. Giving a blanket assurance that all pensions will be protected would certainly give re-newed impetus to its "Right to Request" policy but would be an expensive measure. The approach at present appears to advocate pension transfer if certain criteria are met. Whilst the Anglican Community Enterprise was successful there is no guarantee that future NHS spin-out social enterprises would enjoy a similar result.
Whilst such uncertainty remains, considerable opposition will continue to be voiced, and social enterprise involvement in health and social care provision will be curtailed. Many NHS employees have yet to buy into the social enterprise concept in its present form. The onus is now on the Government to allay those fears.
Showing posts with label UK. Show all posts
Showing posts with label UK. Show all posts
Sunday, 23 January 2011
Sunday, 12 September 2010
Can Charity Trustees be Paid?
The short answer to this question is generally, no.
However, there are limited circumstances where a trustee can be paid by the charity for services provided to or on behalf of a trustee which go above and beyond the normal duties of that person in his or her trustee role.
A number of conditions must be met before any payment can be made:
-The charities governing documents must give an express power to remunerate the trustee.
-There must also be a written agreement between the charity and the trustee to be paid which should set out the minimum and maximum that the trustee can be paid. To avoid any conflict of interest the trustee should not sit partake in the decision made by the board to enter into the agreement.
-The payment must also be reasonable and must be in the best interests of the charity.
-The total number of trustees who are receiving payment must be in the minority.
-There is an onus on the board to adhere to the "duty of care" as laid out in the Trustee Act (NI) 2001 (2000 Trustee Act in England & Wales)
Trustees can of course recover reasonable out of pocket expenses.
However, there are limited circumstances where a trustee can be paid by the charity for services provided to or on behalf of a trustee which go above and beyond the normal duties of that person in his or her trustee role.
A number of conditions must be met before any payment can be made:
-The charities governing documents must give an express power to remunerate the trustee.
-There must also be a written agreement between the charity and the trustee to be paid which should set out the minimum and maximum that the trustee can be paid. To avoid any conflict of interest the trustee should not sit partake in the decision made by the board to enter into the agreement.
-The payment must also be reasonable and must be in the best interests of the charity.
-The total number of trustees who are receiving payment must be in the minority.
-There is an onus on the board to adhere to the "duty of care" as laid out in the Trustee Act (NI) 2001 (2000 Trustee Act in England & Wales)
Trustees can of course recover reasonable out of pocket expenses.
Wednesday, 25 August 2010
Community Benefit Societies & The Asset Lock
In recent years Community Benefit Societies (BenComm's) in England & Wales and Northern Ireland have had the option of introducing an 'asset lock' within their legal framework which ensures, that upon dissolution or amalgamation, the assets will be retained permanently for the benefit of the community. This also prevents the possibility of the assets being redistributed to members upon a conversion from a Society to a Company.
Monday, 23 August 2010
Protecting the Social Mission through your legal structure
The social mission is the common strand which runs through every social enterprise yet it can quickly become subservient to commercial pressures as organisations become increasingly fixated on the financial bottom line. This may occur despite the best intentions of those who run such enterprises, but to avoid such potential dilemmas it is perhaps prudent to build in safeguards which will protect the social theme.
One way of acheiving this is to articulate the social mission in the enterprise's Memorandum and Articles of Association (the governing documents/constitution). Through clearly stipulating the social objectives of the enterprise such documents can help focus those in charge and maintain standards. The governing documents can also be drafted in such a way as to ensure that profits are retained to fund the social mission. Assets can also be 'locked in' to the enterprise so that their benefit will be retained for the community in the event of a sale/dissolution of the company.
Such safeguards are useful but have their limitations in a traditional company structure as it is possible for the board to remove such clauses from the constitution if a majority agree.
As such it may be beneficial for a social enterprise to employ the Community Interest Company structure as a security blanket with which to enfold the normal company arrangement. The Community Interest Company structure contains an asset lock which is legally enshrined and cannot be removed. There are also caps on the ways in which profits may be distributed and any social enterprise that wishes to adopt this structure must pass a community interest test which ensures that the company will carry out activities which benefit the community.This reporting obligation is on-going and must be prepared at the end of each financial year, thus ensuring that the enterprise does not take its 'eyes of the ball' regarding the social mission.
Another way in which the social mission can be protected is by ensuring democratic control of the enterprise. To this end a co-operative type structure (Community Benefit Society)may be employed which encompasses the concept of "one member, one vote". By allowing each member an equal vote regardless of their share capital it would be hoped that vested interests could not reduce the 'social scope'. The Community Benefit Society structure also prevents the distribution of profits to the members; they must be retained for the benefit of the community. Upon dissolution or winding up of such a society only the amount invested by members may be re-claimed. Any other assets must pass for the benefit of the community.
The social mission can be protected in different ways through the effective implemenation of varying legal structures. Which one suits your enterprise best will often depend on the your particular circumstances and goals.
One way of acheiving this is to articulate the social mission in the enterprise's Memorandum and Articles of Association (the governing documents/constitution). Through clearly stipulating the social objectives of the enterprise such documents can help focus those in charge and maintain standards. The governing documents can also be drafted in such a way as to ensure that profits are retained to fund the social mission. Assets can also be 'locked in' to the enterprise so that their benefit will be retained for the community in the event of a sale/dissolution of the company.
Such safeguards are useful but have their limitations in a traditional company structure as it is possible for the board to remove such clauses from the constitution if a majority agree.
As such it may be beneficial for a social enterprise to employ the Community Interest Company structure as a security blanket with which to enfold the normal company arrangement. The Community Interest Company structure contains an asset lock which is legally enshrined and cannot be removed. There are also caps on the ways in which profits may be distributed and any social enterprise that wishes to adopt this structure must pass a community interest test which ensures that the company will carry out activities which benefit the community.This reporting obligation is on-going and must be prepared at the end of each financial year, thus ensuring that the enterprise does not take its 'eyes of the ball' regarding the social mission.
Another way in which the social mission can be protected is by ensuring democratic control of the enterprise. To this end a co-operative type structure (Community Benefit Society)may be employed which encompasses the concept of "one member, one vote". By allowing each member an equal vote regardless of their share capital it would be hoped that vested interests could not reduce the 'social scope'. The Community Benefit Society structure also prevents the distribution of profits to the members; they must be retained for the benefit of the community. Upon dissolution or winding up of such a society only the amount invested by members may be re-claimed. Any other assets must pass for the benefit of the community.
The social mission can be protected in different ways through the effective implemenation of varying legal structures. Which one suits your enterprise best will often depend on the your particular circumstances and goals.
Wednesday, 18 August 2010
Revised Guidance on 'Fit and Proper Persons Test'
HMRC has released revised guidance on the 'fit and proper persons test'. This is not surprising given the uproar over the initial guidance published by HMRC.
Tuesday, 3 August 2010
More delays for Charitable Incorporated Organisation
The Office for Civil Society has now announced that the introduction of the new Charitable Incorporated Organisation legal strucutre has been delayed yet again.
It now appears that the new legal form will be introduced next year at the earliest. Such a significant delay will adversly effect the many organisations which have shown an interest in adopting this structure.
The wait continues.......
It now appears that the new legal form will be introduced next year at the earliest. Such a significant delay will adversly effect the many organisations which have shown an interest in adopting this structure.
The wait continues.......
Friday, 23 July 2010
Renewable Energy Co-Operatives
Barely a day goes by without renewable or green energy being highlighed in the media and as the world frantically seeks to exploit these forms of energy to satisfy its insatiable appetite the question as to who should own the natural resources and the financial benefits of their exploitation come increasingly to the fore.
Many community organisations have successfully engaged in renewal projects across the UK and Ireland with one of the most obvious examples being that of Baywind Energy Co-Operative Ltd
The likes of Baywind have looked to the co-operative (Industrial & Provident Society) model when deciding upon a suitable legal structure which will deliver their stated ojectives.
A co-operative structure offers democratic control (one member/one vote) of the decision making process and involves the local community on a wider scale, putting them at the heart of the management of the enterprise. Doing this helps the local community buy into the concept from the outset which is important given the contentious nature of some renewable energy projects. Some people may argue for example against the erection of wind turbines but if those people are successfuly integrated into the project and see the economic, social and enviromental benefits produced for their community then they are less likely to oppose the enterprise before it has even become established.
The democratic control offered by the co-operative structure is further strengthened by the ability to raise much needed finances from the community by issuing shares. Those persons with shares may then see a financial return when profits are distributed, thus supporting the local economy and rural regeneration.
An asset lock may also be put in place to protect the assets and ensure that they are retained for the benefit of the community, although importantly it would be the choice of the community as to whether they wished to ensure this.
The co-operative model offers the best legal vehicle through which a community may engage in a renewable energy project.
Friday, 9 July 2010
Company Name Disputes
Social enterprises, despite their often altruistic motives, are still firmly immersed in the commercial world and all the business related themes that entails. Consequently, social enterprises (and for that matter any commercial enterprise) should view the protection of their intellectual property as an integral part of the business process.
The ownership of ideas, products and services will often form part of the goodwill enjoyed by a company. That goodwill generates business which in turn helps enterprises to create profit and/or meet their social objectives.
The ownership of ideas, products and services will often form part of the goodwill enjoyed by a company. That goodwill generates business which in turn helps enterprises to create profit and/or meet their social objectives.
One of the most important and obvious examples of the way in which intellectual property can generate goodwill is through the company name. The name affords the company a highly visible means of identification through which the enterprise can build a reputation and brand; vital components for any successful commercial entity.
Thus it is understandable given the importance of the name that disputes can, and often do arise between companies over ownership. The Company Act 2006 offers some legislative remedy to those disputes under the guise of section 69.
Under S69 (1) A person ("the applicant") may object to a company name on the ground that:
(a) the name is the same as a name associated with the applicant in which he has goodwill.
(b) that the name is sufficiently similar to such a name that its use within the UK would be likely to mislead by suggesting a connection between the company and the applicant.
If the applicant can satisfy one of the above then it is up to the other party ("the respondent") to put forward one of the accepted grounds of defence as laid out in S69(4) of the Act.
1. The first defence that may be relied on is if the name was registered by the respondent before the commencement of the activities on which the applicant relies to show goodwill. Therefore it would be prudent for any enterprise contemplating an objection of a company name to check when the other party first registered the name with Company House. (Sub-section 4(a))
This defence does not apply where the company name was registered in anticipation of goodwill or reputation being established by another company. An example would be where someone knows that a merger is about to take place between two companies and so registers one or more variations of the name that the newly formed commercial entity is likely to require. The registration(s) would be opportunistic in that the registration holder’s purpose in obtaining the registration was to cash in on the other entity’s fame. This is known as an opportunistic registration.
2. The second defence arises if the (respondent) company is operating under the name, or is proposing to do so and has incurred substantial start-up costs in preparation; or was formerly operating under that name and is now dormant (subsection 4(b))
Thus it is understandable given the importance of the name that disputes can, and often do arise between companies over ownership. The Company Act 2006 offers some legislative remedy to those disputes under the guise of section 69.
Under S69 (1) A person ("the applicant") may object to a company name on the ground that:
(a) the name is the same as a name associated with the applicant in which he has goodwill.
(b) that the name is sufficiently similar to such a name that its use within the UK would be likely to mislead by suggesting a connection between the company and the applicant.
If the applicant can satisfy one of the above then it is up to the other party ("the respondent") to put forward one of the accepted grounds of defence as laid out in S69(4) of the Act.
1. The first defence that may be relied on is if the name was registered by the respondent before the commencement of the activities on which the applicant relies to show goodwill. Therefore it would be prudent for any enterprise contemplating an objection of a company name to check when the other party first registered the name with Company House. (Sub-section 4(a))
This defence does not apply where the company name was registered in anticipation of goodwill or reputation being established by another company. An example would be where someone knows that a merger is about to take place between two companies and so registers one or more variations of the name that the newly formed commercial entity is likely to require. The registration(s) would be opportunistic in that the registration holder’s purpose in obtaining the registration was to cash in on the other entity’s fame. This is known as an opportunistic registration.
2. The second defence arises if the (respondent) company is operating under the name, or is proposing to do so and has incurred substantial start-up costs in preparation; or was formerly operating under that name and is now dormant (subsection 4(b))
This defence would not be available if the name was registered but the company never conducted business under that company title.
Like in the first defence if the applicant can prove that it was a opportunistic registration this will trump a successful defence under 4(b)
3. The respondent could also argue that the name was registered in the ordinary course of a company formation business and the company name is available for sale to the applicant on the standard terms of that business. (sub-section 4(c))
Again an opportunistic registration will defeat this defence whatever its merits.
4. The respondent can state that the name was adopted in good faith; that it was not carried out with some conspiracy in mind but that the similarities are mere coincidence and that the respondent's motivation and knowledge are beyond reproach. (sub-section 4 (d))
5. The last potential defence under S69 is where the interests of the applicant are not adversely affected to any significant extent by the fact that that the name is the same or is similar. (sub-section 4 (e))
Consequently a goodwill or reputation of little or no commercial significance would not be sufficient and would allow the respondent to mount a successful defence under this subsection.
In effect section 69 only afford protection to the applicant if (s)he can prove that the registration of another company name was opportunistic in nature and/or that it adversely affected the applicant's business.
The first port of call if you do feel aggrieved over another company name should be Company House. If you believe that an opportunistic registration has taken place then you should contact the Company Name Adjudicator.
Both organisations should be able to offer initial guidance and support.
Wednesday, 7 July 2010
New Legal Tool (Get Legal)
The NCVO has introduced a new on-line tool which helps prospective charities, social enterprises and co-operatives to sift through the host of different legal structures available and to pick the one that best suits their respective needs and objectives.
Many organisation face the issue of choosing a legal structure with some trepidation so this tool will hopefully be of considerable benefit.
Many organisation face the issue of choosing a legal structure with some trepidation so this tool will hopefully be of considerable benefit.
Thursday, 10 June 2010
Industrial & Provident Society Forms (Bona Fide & BenComm)
An Industrial & Provident Society (IPS) can take one of two distinct forms, namely that of a Bona Fide Co-operative or a Society for the Benefit of the Community (BenComm).
A Society may register as an IPS if it:
(1) carries on any industry, business or trade, whether retail or wholesale AND
(2) is either one of the two aforementioned forms.
But what is the difference between a Bona Fide Co-operative and the BenComm?
Bona Fide Co-operative
A Bona Fide Co-operative is an incorporated society which acts for the mutual benefit of all of its members.
Whilst there is no statutory definition of a Bona Fide Co-operative certain criteria has been laid down defining this form:
(1) Members' benefits in the main stem from their participation in the business of the society
(2) Control of the society is vested in members equally, through the principle of 'one person, one vote'
(3) return on capital does not exceed a rate necessary to retain sufficient capital to carry out the society's objectives
(4) Any profits after payment of interest will, if distributable amongst the members, be distributed in proportion to the extent to which members have traded with or taken part in the society's business
(5) Membership will not be restricted artificially with the object of increasing the value of proprietary rights and interests.
The criteria is designed to ensure that members interest in the society is not based solely on the amount of capital they have put into the organisation.
Example: members of a social club serving current and former transport workers. The members interest in the club is a genuine community one shared with fellow and former work colleagues. A person does not join with the sole aim of obtaining some financial return, although that may occur in some circumstances.
Indeed, the legislation governing IPS states that a Co-operative society does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person. Such co-operative entities would likely incorporate as a company instead.
Society for the Benefit of the Community (BenComm)
Unlike the Bona Fide form, a BenComm will act for the benefit of the community rather than just its members.
Profits will not be distributed among members but will be returned to the community. A BenComm is one of the many legal structures employed by Social Enterprises. A BenComm may also be a charity although this will depend on its constitution and objectives.
Special reasons must be given as to why the society should not be registered as a company. Its rules should also prohibit the distribution of assets among members.
Example: Housing Associations are often registered as BenComms as they serve the interests of the wider community rather than the narrow spectrum of their membership.
Both forms must adhere to the general conditions relating to societies as governed by the Industrial & Provident Societies Act (NI) 1969 (The Co-Operative and Community Benefit Societies Act 1965 in England & Wales - formerly referred to as Industrial & Provident Societies Act 1965)
A Society may register as an IPS if it:
(1) carries on any industry, business or trade, whether retail or wholesale AND
(2) is either one of the two aforementioned forms.
But what is the difference between a Bona Fide Co-operative and the BenComm?
Bona Fide Co-operative
A Bona Fide Co-operative is an incorporated society which acts for the mutual benefit of all of its members.
Whilst there is no statutory definition of a Bona Fide Co-operative certain criteria has been laid down defining this form:
(1) Members' benefits in the main stem from their participation in the business of the society
(2) Control of the society is vested in members equally, through the principle of 'one person, one vote'
(3) return on capital does not exceed a rate necessary to retain sufficient capital to carry out the society's objectives
(4) Any profits after payment of interest will, if distributable amongst the members, be distributed in proportion to the extent to which members have traded with or taken part in the society's business
(5) Membership will not be restricted artificially with the object of increasing the value of proprietary rights and interests.
The criteria is designed to ensure that members interest in the society is not based solely on the amount of capital they have put into the organisation.
Example: members of a social club serving current and former transport workers. The members interest in the club is a genuine community one shared with fellow and former work colleagues. A person does not join with the sole aim of obtaining some financial return, although that may occur in some circumstances.
Indeed, the legislation governing IPS states that a Co-operative society does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person. Such co-operative entities would likely incorporate as a company instead.
Society for the Benefit of the Community (BenComm)
Unlike the Bona Fide form, a BenComm will act for the benefit of the community rather than just its members.
Profits will not be distributed among members but will be returned to the community. A BenComm is one of the many legal structures employed by Social Enterprises. A BenComm may also be a charity although this will depend on its constitution and objectives.
Special reasons must be given as to why the society should not be registered as a company. Its rules should also prohibit the distribution of assets among members.
Example: Housing Associations are often registered as BenComms as they serve the interests of the wider community rather than the narrow spectrum of their membership.
Both forms must adhere to the general conditions relating to societies as governed by the Industrial & Provident Societies Act (NI) 1969 (The Co-Operative and Community Benefit Societies Act 1965 in England & Wales - formerly referred to as Industrial & Provident Societies Act 1965)
Tuesday, 1 June 2010
Legal Issues facing the social economy sector
If there are any general legal issues facing the social enterprise sector which you would like me to post on please fell free to make a comment below, or alternatievely, you can email at the address provided.
Regards
Conor
Regards
Conor
Wednesday, 26 May 2010
Gift Aid for Companies and Wholly Owned Subsidiaries
Donations Made By Companies to Charities
A company that produces profits will be subject to Corporation Tax. However the company can enjoy the benefits of corporation tax relief on a donation made to a charity.
If a company decides to give money to a charity it simply makes a payment to that charity. The donation will be treated as a non-trade charge. No tax is deducted from the payment and the company does not have to make a Gift Aid Declaration to the charity. The charity will consequently not have to make a Gift Aid tax repayment claim because no tax has been paid on the payment.
In order to obtain the corporation tax relief the company will then deduct the amount of the donation from the total profits for that accounting year prior to the calculation of corporation tax. The claim will be made in the Corporation Tax Self Assessment Return (CTSA).
The company should keep normal accounting records to support its claim for relief in the CTSA. Any other relevant correspondence should be retained by the company such as a thank-you letter from the charity for the donation.
The donations cannot be carried over into another accounting period in-order to reduce the taxable profit for that year.
Example:
Company A makes a donation of £20,000 to Charity B. Company A makes a total profit for the year of £300,000. The £20,000 donation is deducted from the £300,000 profits to leave £280,000. The corporation tax payable by the company is calculated against the £280,000 figure, not the total profits of £300,000.
A qualifying Donation:
A company may claim tax relief on any donation so long as it is a ‘qualifying’ payment. A distribution of profit such as a dividend will not qualify as a donation for the purpose of tax relief.
Other non-qualifying Gifts:
-Gifts that are subject to a condition such as repayment
-Gifts which are associated with or conditional upon the charity’s acquisition of any property from the donor or any person connected to the company (except by way of Gift)
-Gifts where the company or a person connected to the company has received a benefit over a certain value in return.
The benefits which a donor may receive in return for a donation are restricted as follows:
-for donations of £0-100: 25% of the donation
-for donations of £101-1000: £25
-for donations above £1000: 5% of the donation
-for donations above £10,000: £500
Example:
Company A makes a donation of £950 to Charity B. As a thank-you gesture Charity B decides to make a gift to the company. In order for the original donation to remain as a qualifying gift the charity’s own gift to the company must not value more than £25.
A company wholly owned by a Charity:
Many charities now establish subsidiaries companies to carry out trading activities. These non-charitable subsidiaries will of course be liable to corporation tax on their profits. However these companies can make payments to the parent charity equivalent to some or all of its taxable profits.
The payment will be treated as a non-trade charge and will be deducted from the subsidiaries taxable profits. Dividends paid to the charity will still be viewed as a distribution of profits and therefore will not qualify as a donation for the purposes of tax relief.
Normally a company cannot carry any donation into another accounting period but special rules apply for companies owned wholly by a charity. A wholly owned subsidiary has nine months from the end of the relevant accounting period in which to make a donation. Therefore if the payment is made within nine months of the particular accounting period it can choose to treat it as if was paid in that earlier accounting period
For Example:
The accounting period ends in April 2010. The subsidiary can make the donation up to nine months after the April 2010 date and it will still be considered as having been made in the April 2009/2010 year.
Deferring the payment can assist in the cash flow of the company as subsidiaries will often want to make payment of their entire profits. The timing of the Gift Aid payments is primarily a matter for the directors of the subsidiary.
A company partly owned by a Charity:
A charity can establish a ‘joint venture’ company with another company which will be jointly owned by the two entities. Joint ventures can make Gift Aid donations and claim tax relief. However unlike companies wholly owned by a charity the joint venture does not enjoy the nine month rule. The tax relief must be claimed for the accounting period during which the payment was made.
Any payment made by the joint venture to the charity in its capacity as a shareholder will not be viewed as a qualifying donation by HMRC. Whether the payment is classed as a distribution of profits with respect to shares will depend on underlying nature of the payment.
If the payment was made in direct relation to the shareholding of the charity then this would not qualify for Gift Aid purposes.
For example:
The joint venture makes a profit of £400,000. The charity owns 50% of the venture. If 50% of the profits are donated to the charity this could be well viewed by HMRC as a distribution of profits with no subsequent tax relief for the joint venture.
Sources
See HMRC website for detailed guidance on this matter.
A company that produces profits will be subject to Corporation Tax. However the company can enjoy the benefits of corporation tax relief on a donation made to a charity.
If a company decides to give money to a charity it simply makes a payment to that charity. The donation will be treated as a non-trade charge. No tax is deducted from the payment and the company does not have to make a Gift Aid Declaration to the charity. The charity will consequently not have to make a Gift Aid tax repayment claim because no tax has been paid on the payment.
In order to obtain the corporation tax relief the company will then deduct the amount of the donation from the total profits for that accounting year prior to the calculation of corporation tax. The claim will be made in the Corporation Tax Self Assessment Return (CTSA).
The company should keep normal accounting records to support its claim for relief in the CTSA. Any other relevant correspondence should be retained by the company such as a thank-you letter from the charity for the donation.
The donations cannot be carried over into another accounting period in-order to reduce the taxable profit for that year.
Example:
Company A makes a donation of £20,000 to Charity B. Company A makes a total profit for the year of £300,000. The £20,000 donation is deducted from the £300,000 profits to leave £280,000. The corporation tax payable by the company is calculated against the £280,000 figure, not the total profits of £300,000.
A qualifying Donation:
A company may claim tax relief on any donation so long as it is a ‘qualifying’ payment. A distribution of profit such as a dividend will not qualify as a donation for the purpose of tax relief.
Other non-qualifying Gifts:
-Gifts that are subject to a condition such as repayment
-Gifts which are associated with or conditional upon the charity’s acquisition of any property from the donor or any person connected to the company (except by way of Gift)
-Gifts where the company or a person connected to the company has received a benefit over a certain value in return.
The benefits which a donor may receive in return for a donation are restricted as follows:
-for donations of £0-100: 25% of the donation
-for donations of £101-1000: £25
-for donations above £1000: 5% of the donation
-for donations above £10,000: £500
Example:
Company A makes a donation of £950 to Charity B. As a thank-you gesture Charity B decides to make a gift to the company. In order for the original donation to remain as a qualifying gift the charity’s own gift to the company must not value more than £25.
A company wholly owned by a Charity:
Many charities now establish subsidiaries companies to carry out trading activities. These non-charitable subsidiaries will of course be liable to corporation tax on their profits. However these companies can make payments to the parent charity equivalent to some or all of its taxable profits.
The payment will be treated as a non-trade charge and will be deducted from the subsidiaries taxable profits. Dividends paid to the charity will still be viewed as a distribution of profits and therefore will not qualify as a donation for the purposes of tax relief.
Normally a company cannot carry any donation into another accounting period but special rules apply for companies owned wholly by a charity. A wholly owned subsidiary has nine months from the end of the relevant accounting period in which to make a donation. Therefore if the payment is made within nine months of the particular accounting period it can choose to treat it as if was paid in that earlier accounting period
For Example:
The accounting period ends in April 2010. The subsidiary can make the donation up to nine months after the April 2010 date and it will still be considered as having been made in the April 2009/2010 year.
Deferring the payment can assist in the cash flow of the company as subsidiaries will often want to make payment of their entire profits. The timing of the Gift Aid payments is primarily a matter for the directors of the subsidiary.
A company partly owned by a Charity:
A charity can establish a ‘joint venture’ company with another company which will be jointly owned by the two entities. Joint ventures can make Gift Aid donations and claim tax relief. However unlike companies wholly owned by a charity the joint venture does not enjoy the nine month rule. The tax relief must be claimed for the accounting period during which the payment was made.
Any payment made by the joint venture to the charity in its capacity as a shareholder will not be viewed as a qualifying donation by HMRC. Whether the payment is classed as a distribution of profits with respect to shares will depend on underlying nature of the payment.
If the payment was made in direct relation to the shareholding of the charity then this would not qualify for Gift Aid purposes.
For example:
The joint venture makes a profit of £400,000. The charity owns 50% of the venture. If 50% of the profits are donated to the charity this could be well viewed by HMRC as a distribution of profits with no subsequent tax relief for the joint venture.
Sources
See HMRC website for detailed guidance on this matter.
Friday, 21 May 2010
The Fit and Proper Persons Test
The newly introduced 'Fit and Proper Persons Test' has created an uproar within the UK charity Sector. The test, which scrutinises the suitability of directors/trustees has come in for scathing criticism. Many charities are understandably worried that they may be caught out by the new scheme and consequently lose their charitable tax status.
The HMRC have gone some way to allaying these concerns by publishing a Questions and Answers guide. The guide stresses that a charity will not automatically lose their charitable tax reliefs if one or more trustees/directors fail the 'fit and proper' test. The HMRC will work with charities to mitigate against such penalties arising.
The Guidance goes on to say that the HMRC approach will depend upon the individual circumstances in each case. It would be hoped that such flexibility would mitigate against the otherwise draconian measures introduced for any failings. Of course on the flip side such an individualistic approach may leave charities with little idea as to what may happen to their status right up until the HMRC makes its decision.
The HMRC have gone some way to allaying these concerns by publishing a Questions and Answers guide. The guide stresses that a charity will not automatically lose their charitable tax reliefs if one or more trustees/directors fail the 'fit and proper' test. The HMRC will work with charities to mitigate against such penalties arising.
The Guidance goes on to say that the HMRC approach will depend upon the individual circumstances in each case. It would be hoped that such flexibility would mitigate against the otherwise draconian measures introduced for any failings. Of course on the flip side such an individualistic approach may leave charities with little idea as to what may happen to their status right up until the HMRC makes its decision.
Friday, 7 May 2010
Co-operatives & Community Interest Companies
Community Interest Companies have generally been structured as Companies Limited by Guarantee or by Shares. However Co-operatives UK have now created a Co-operative template for those wishing to set up a CIC but who do not want to go down the traditional company route.
This once again highlights the evolving nature of the CIC structure.
Examples of Co-operative community interest companies include:
Rygbi Gogledd Cymru
Upstart
This once again highlights the evolving nature of the CIC structure.
Examples of Co-operative community interest companies include:
Rygbi Gogledd Cymru
Upstart
Wednesday, 21 April 2010
Community Interest Companies (CIC's)
Community interest companies (CICs) are limited companies with a number of additional features and regulations, created for those who want to conduct a business for the community benefit and not purely for private advantage. This is achieved by a community interest test and asset lock which ensures that the CIC is established for community purposes and the assets and profits are dedicated to those same goals.
The UK Governments stated objectives when drawing up this new legal model were to improve access to finance, create a strong new brand, provide protection from demutualisation (investors changing the aims and nature of the company) and preserve assets and profits for social purposes.
CICs will generally be structured as either a company limited by shares (CLS) or a company limited by Guarantee (CLG) although in practice the majority of CIC's register as the latter.
Setting up a CIC
When registering your company with Companies House, you will need to provide additional documents, including a community interest statement describing your social purpose. The CIC regulator will approve your application if your statement passes the community interest test - ie the business activities you intend to undertake will be carried out for the benefit of the community or a section of it. The test is whether a reasonable person could consider those activities to benefit the community.
Features of a CIC
CICs have to follow specific rules, including the following:
Asset lock
CICs must have an asset lock. This ensures that the company cannot generally transfer its profits or assets for less than their full market share. The exception being a transfer to another asset locked company such a charity or other CIC. It will also protect any remaining assets for the community if you dissolve the CIC. The lock is legally enshrined and cannot be removed under any circumstances.
Dividend Cap
If you set up your CIC as a company limited by shares, you will have the option of issuing shares that pay a capped dividend to investors. The cap is set by the CIC Regulator to protect the asset lock and strike a balance between encouraging people to invest in CIC's and the principle that the assets and the profits of a company should be devoted to the benefit of the community.
There are three elements to the Dividend Cap:
1. maximum dividend per share limits amount of dividend that can be paid on any given share. Currently the limit is a flat rate of 20% of the paid up value of the share.
2. The maximum aggregate dividend limits the total dividend declared in terms of the profits available for distribution. Currently, the limit is 35% of the distributable profits.
3. The ability to carry forward unused dividend capacity from year to year to a limited extent. Currently the limit is 5 years.
It should be noted that these caps set maximums. They should not be taken as in any way suggesting that those who invest in CICs are entitled to a particular rate of return on their investment.
Performance Related Cap
CIC will generally have the same borrowing powers as any other company. On rare occasions the situation will arise were the interest payable on debts or debentures is linked to the performance of the CIC (also known as quasi equity). The ability to pay uncapped interest in this fashion would circumvent the Dividend Cap.
Therefore a cap exists on the maximum interest payable. It has been set as 10& of the average amount of a CICs debt or sum outstanding under a debenture.
Accounting
Together with your annual accounts, you must present an annual community interest company report for public record. The report must show what the CIC has done during the year to pursue its pre-specified community interests.
Whilst take up of the CIC structure has been relatively muted in Northern Ireland the structure does appear to have struck a chord with many social entrepreneurs and is unquestionably a useful addition to the social enterprise sector.
For further information see the CIC Regulator website: http://www.cicregulator.gov.uk/
The UK Governments stated objectives when drawing up this new legal model were to improve access to finance, create a strong new brand, provide protection from demutualisation (investors changing the aims and nature of the company) and preserve assets and profits for social purposes.
CICs will generally be structured as either a company limited by shares (CLS) or a company limited by Guarantee (CLG) although in practice the majority of CIC's register as the latter.
Setting up a CIC
When registering your company with Companies House, you will need to provide additional documents, including a community interest statement describing your social purpose. The CIC regulator will approve your application if your statement passes the community interest test - ie the business activities you intend to undertake will be carried out for the benefit of the community or a section of it. The test is whether a reasonable person could consider those activities to benefit the community.
Features of a CIC
CICs have to follow specific rules, including the following:
Asset lock
CICs must have an asset lock. This ensures that the company cannot generally transfer its profits or assets for less than their full market share. The exception being a transfer to another asset locked company such a charity or other CIC. It will also protect any remaining assets for the community if you dissolve the CIC. The lock is legally enshrined and cannot be removed under any circumstances.
Dividend Cap
If you set up your CIC as a company limited by shares, you will have the option of issuing shares that pay a capped dividend to investors. The cap is set by the CIC Regulator to protect the asset lock and strike a balance between encouraging people to invest in CIC's and the principle that the assets and the profits of a company should be devoted to the benefit of the community.
There are three elements to the Dividend Cap:
1. maximum dividend per share limits amount of dividend that can be paid on any given share. Currently the limit is a flat rate of 20% of the paid up value of the share.
2. The maximum aggregate dividend limits the total dividend declared in terms of the profits available for distribution. Currently, the limit is 35% of the distributable profits.
3. The ability to carry forward unused dividend capacity from year to year to a limited extent. Currently the limit is 5 years.
It should be noted that these caps set maximums. They should not be taken as in any way suggesting that those who invest in CICs are entitled to a particular rate of return on their investment.
Performance Related Cap
CIC will generally have the same borrowing powers as any other company. On rare occasions the situation will arise were the interest payable on debts or debentures is linked to the performance of the CIC (also known as quasi equity). The ability to pay uncapped interest in this fashion would circumvent the Dividend Cap.
Therefore a cap exists on the maximum interest payable. It has been set as 10& of the average amount of a CICs debt or sum outstanding under a debenture.
Accounting
Together with your annual accounts, you must present an annual community interest company report for public record. The report must show what the CIC has done during the year to pursue its pre-specified community interests.
Whilst take up of the CIC structure has been relatively muted in Northern Ireland the structure does appear to have struck a chord with many social entrepreneurs and is unquestionably a useful addition to the social enterprise sector.
For further information see the CIC Regulator website: http://www.cicregulator.gov.uk/
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