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Abolish Corporation Tax for NFP Community Interest Companies

1 Comment 3rd July 2010

As a volunteer director of a NFP Community Interest Company I think that the notion of charging corporation tax on surpluses undermines the core principle of both the 'not for profit' and 'community interest' principles. My proposal is to abolish corporation tax for Community Interest Companies where the profit is being reinvested back into community benefits and especially where there are no paid staff.

My organisation is dependant upon securing grants from various bodies to help us deliver a community radio service. We have about 80 volunteers, no paid staff and an annual budget of about £15K. If we secure a grant for a project in the 11th month of our financial cycle, the money appears as a 'profit' on the accounts, which would be balanced in the following year as a 'loss'. We are required to make our corporation tax return within the following few months and are therefore subject to paying the tax on grant funding that has been given to us for delivering a specific community benefit. This makes no sense.

Why does this matter?

This is important for several reasons.

1. The Community Interest Companies were established to provide an alternative vehicle to the charity plus trading company model so often used by organisations. A CIC can't be a charity and there are swings and roundabouts.However, the imposition of corporation tax on notional surpluses makes this a more difficult entity to manage, especially for smaller organisations.

2. The purpose of NFP CICS is to deliver community benefits and, although they can make surpluses, these 'profits' are there to enable the CIC to deliver more community benefits.

3. The amount of volunteer work required to attract grants or to develop revenue is disproportionately higher than in normal companies – mainly because volunteers have to do their day jobs as well. The prospect of having to lose hard earned funding to corporation tax is extremely demotivating at a time when we, as a country, want more people to take part in the Big Society.

4. Many grants come from local government. It seems pointless for local government to make a grant to enable a community benefit and then central government to take a % away because the costs of service delivery haven't yet been borne.

5. Although I accept and understand that CICs should pay corporation tax on earned income that generates a surplus, perhaps there needs to be a change in how we account for grant funding or perhaps an exemption that applies to CICs that are predominatly volunteer based.

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One Response to Abolish Corporation Tax for NFP Community Interest Companies

  1. michael sims says:

    fantastic idea,
    we at truly local cic are facing a real problem in that we received approx 30k in funding and have spent the majority of this on fixed assets, which as i undestand can be written down at a rate of 25% a year leaving
    us with having to pay corporation tax on the ramaining asset value with money that we dont have as we were required to spend all the grant monies we received on setting up the cic. How about being able to allow cics
    100% tax relief on all expenditxure in the
    1st year of setting up.

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