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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am director of a small (very small) business helping

Customer Question

I am director of a small (very small) business helping people learn about Christian prayer. I'm preparing accounts for the year to 2016. There are two types of money that I don't know how to account for. The first is donations. This is either money that my husband and I have put into the company, or money that we've been given from individuals and charities to set up the business. (The amount is around £5k).
So question 1. Is are donations just put in the balance sheet under cash?
The business made a loss in terms of revenue minus expenses, but we are in the black because of the donations. I took £260 total out of the business. It is not a dividend, because we are not in profit, but it was with agreement of the board - and came out of the money donated.
Question 2. How do I account for this payment on the balance sheet?
Submitted: 1 month ago.
Category: Tax
Expert:  bigduckontax replied 1 month ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

The donations ate income to the company for Corporation Tax (CT) purposes. I suggest that the money you and your husband put into the company be accounted for as loan by a director. It than can be repaid outside the CT envelope and will prevent you having to operate PAYE as directors on sums withdrawn.

I do hope that I have shown you a way forward in this matter.

Customer: replied 1 month ago.
Thank you, ***** ***** money in the previous year, but not in the tax year I'm accounting for.
The money that has been donated is from charities (churches) and an individual. So it is not revenue. I don't understand why I can't be paid out of this money legally.
Customer: replied 1 month ago.
Our total revenue was around 1k and donations 5k. I paid myself £260.
Customer: replied 1 month ago.
I'm grateful for your help, are you still there?
Expert:  bigduckontax replied 1 month ago.

I would submit that for the purposes of CT in the light of this company's activities it does constitute revenue. You cannot pay yourself emoluments from a company save through PAYE channels unless you are refunding moneys deposited therein by you.

Customer: replied 1 month ago.
Thank you.
So to clarify and make sure I've understood correctly.
You are sure that charities give us money to start up the company this is liable for corporation tax and seen as part of the income that can count towards profit, event though the money did not buy a service?
Expert:  bigduckontax replied 1 month ago.

This matter has been the subject of discussion on Accounting Web; see here:

http://www.accountingweb.co.uk/any-answers/are-grants-and-donations-taxable-income-for-corporation-tax

The general consensus of opinion supports my contention.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 1 month ago.
I am still not sure of the answer, and will have to digest that which is written in the article you've sent. I will rate the answer once I have one that I'm happy with.
I have a meeting now, so this will be later.
Expert:  bigduckontax replied 1 month ago.

OK, I shall have gone to bed by the time you are through as I am answering you from a time zone 6 hours ahead of the UK. I will contact you in the morning, my time.

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