Our trading subsidiary has been making losses, can we still pay this year’s profits to the charity and not pay tax?

The Gift Aid distribution of profits from a trading subsidiary to the parent charity can only be made from distributable profits. This means that if the subsidiary has negative reserves at the start of the year, the profits up to that level will not be available to reduce the taxable profits, and the subsidiary may have corporation tax to pay if any tax losses brought forward do not cover the taxable profit. Similarly, if it is your intention for the trading subsidiary to build up its reserves to fund future working capital, then tax will need to be paid on the profits that are retained.

Want to discuss further?

Helen Elliott

Partner

Ross Palmer

Senior Tax Manager

Gillian McKay

Senior Tax Manager

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