New guidance for charities from the ICAEW

Do you operate a trading subsidiary that donates its profits to the parent charity?

Donations by a subsidiary to its parent charity

Many charities have used trading subsidiaries as a vehicle to mitigate corporation tax on trading profits.Taxable profits earned can be reduced by the payment of a donation by the subsidiary to its parent charity.

There has recently been new guidance and counsel opinion over the lawfulness and treatment where a subsidiary donates all its taxable profits to the parent charity and the amount is in excess of the profits available for distribution under the Companies Act 2006. As a result the Charity Commission withdrew Guidance Note CC35.

This link below takes you to the ICAEW Technical Release which provides guidance on this matter.

If you run a charity and would like Dafferns to review your position, particularly if past donations by your trading subsidiary have been in excess of available distributable profits, please contact Geoffrey Cox