I have a client who works self employed, invoicing her clients at the end of each month. She has one Current Account where all her invoice payments are paid into, and a savings account which she uses for non business.
In 2016 she also set up a small charity and until she knew if it would grow and be a viable "business" she did not want to set up another bank account. She received donations during the 2016/2017 tax year totalling around £5,000 for the charity and has receipts to show the funds were appropriately distributed on Charity expenses. For the donations she used her savings account so the funds were kept separate from her self employed business..
In 2017 she registered the charity with HMRC and Companies house as a non for profit limited by guarantee with its own Ltd Company Bank Account.
For the donations received in 2016/2017 would these have to show as personal income to her as it was funds received into her personal bank account, or can she show them as solely charity income and exclude them from her tax return?
As the charity was not registered there is no record of it but she has kept excellent records to prove appropriate expenditure but I am not sure what to advise re a self employed, tax, income perspective as its a new one on me.
Please advise on what would be the correct way to handle the donations / income
Sorry Sarah
I typed an answer on your thread instead of someone else's, so Ive edited it out.
Will need to read yours again when Ive had a brew.
Although a question that comes to mind, or two - is this also registered with the Charities Commission (sorry just rambling thoughts, as my head is on foreign tax at the mo so Im probably not making sense as well as typing rubbish!), where were the donations from/was every penny received in matched by an expense/does she have receipts for the expenses and what exactly was the money spent on?
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Was she registered with the Charity Commission in 2016? (in fact, is she now?)
From what you've said, she has since set up a CIC, not a charity.
You would have to ask HMRC to give you a written answer as to whether the 5k is taxable. There isn't enough information as to what the donations were for and where the money went as to make an informed decision.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
OMG - tell her to get her blinkin act together! She needs to understand her legal responsibilities towards the general public she has collected from and her 'so called' charity for funds collected.
Its income. With no deduction for her expenses.
Her cavalier attitude have cost her dearly.
Although IF she has receipts and can show she spent every penny then I would apply in writing as John suggests. Problem here is what she did with any o/s balance so that would need to factor into your letter.
Other problem is - isnt it late for her tax return for this period we are talking about.
-- Edited by Cheshire on Wednesday 13th of September 2017 01:33:36 PM
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Stop stalking me lol I'm a lot slower typer than you and your reply wasn't there when I began my reply
Good to see we were on the same lines.
Oh but John, I know you love it really when I stalk you!!
Good to see Im making SOME sense on here today after my dodgy start and confusing Sarah.
Oh by the way Sarah - can you add your name so that it appears under the signature bar on your posts? Saves me looking it up!! (Edit profile --->signatures).
Thanks
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
The first thing she needs to do is to stop thinking of herself and referring to herself as a charity. The word charity is a legally protected term.
As I say, often, dont you just love clients. If only they spoke to us before they did something rather than after the fact and then expect us to mop up their complete messes!
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you all for your replies. It was her understanding that you can call yourself a charity but not refer to yourself as a "registered charity" until you are registered with the CC.
She has receipts to show all of the donations given were used appropriately.
Would it be better for her to show monies received as income then and just start from the date she became a registered not for profit ?
The period we are talking about was March 2016 to April 2017.
-- Edited by AccountingAdmin on Wednesday 13th of September 2017 02:53:28 PM
-- Edited by AccountingAdmin on Wednesday 13th of September 2017 03:01:07 PM
Thank you John. My client says she is quite prepared to show the money received as income but didn't want anyone to think that she was using the donations as her own income stream as the funds were used for the purposes for which they were given. She knows she should have done things differently but just wants to do the right thing, and I think the fact that she registered as a Not For Profit Limited By Guarantee in 2017 once she knew there was a need/demand for what she was doing then I think it shows she really is trying to do things correctly.
I also think she was given some bad advice by a well meaning friend who used to be an accountant and it has not served her well. She's a genuinely lovely lady so I want to help her if I can but may refer her to someone who is more specialist in this area.
I am very keen to hear your thoughts on the subject though, as there is a great knowledge bank here !
Oh but John, I know you love it really when I stalk you!!
My guilty pleasure exposed lol.
I totally agree with you regards taxability, but wondered if it could be treated as self employed income and then expenses claimed?
Edit: Reference to tax year deleted, Sarah has explained
-- Edited by Leger on Wednesday 13th of September 2017 03:22:40 PM
Ah yes, I saw the 2016 date and got that stuck in my head. Appreciate now that it is within year.
She could report two trades, so Sarah you would just need to check all the expenses are W&E, as per usual. Assuming you dont want to approach HMRC for a ruling - there is time so I think that should be the first option.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Okay thank you Joanne, that was my first thought when she came to me to do a set of accounts for both, and then show as two separate self employed businesses, the one for the animals will show no profit though as it was pretty much donation in, expense out, with receipts to back that all up.
Then she can start with a clean slate in 2017/2018 tax year.
Thank you again for your advice.
Sarah
-- Edited by AccountingAdmin on Wednesday 13th of September 2017 04:13:03 PM
As I say, often, dont you just love clients. If only they spoke to us before they did something rather than after the fact and then expect us to mop up their complete messes!
