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bigduckontax, Accountant
Category: Tax
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I require second opinion on Corporation Tax of a Mutual Trading

Customer Question

I require second opinion on Corporation Tax of a Mutual Trading Limited Company by Shares. Working Mens Club non Charity.
Main question : Is Corporation Tax payable on a Capital Gain or exempt as trading income is.
Secondary Question : The property sold above was let. Is tax payable on that letting income. If the tenant is a member does that have any bearing.
Final Question : Where trade is non mutual ie letting rooms for non member functions, is there some accepted formula to calculate offset expenses from total expenses
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.
This is what HMRC is likely to query in the financial activities of a mutual organisation:
'The significant issue
The two issues which arise in this context are to what extent, if at all, a club carries on a trade and, if so, to what extent that trade is undertaken on a mutual basis. In practice we think it is helpful to consider the two points separately even if as a matter of strict law the two issues cannot be disentangled quite so cleanly.'
I am of the opinion that that letting is a trading activity, although this might not be the case were the occupant a caretaker etc. Thus the profits therefrom would be subject to Corporation Tax (CT). When such a property is sold, as it has been used for trading, the capital gain would also be included in the CT computation.
The logical way to offset expenses would be either on a floor area basis or maybe the number of rooms. HMRC prefer the latter. If you have 6 meeting rooms and 2 continually let out then the costs would be split, two thirds against the Company, one third against the rentals. Any similar form of equitable division would be acceptable.
I do hope I have helped shed some light on your question.