New client CIC limited by guarantee

Hi there, I have a new client. They are a CIC (Community Interest Company). My question is, before I set them up with an account at Quickfile, can anyone tell me whether one of the options for business type is a CIC?

I can’t seem to find a list of business types on Quickfile’s site.

Thanks

Hello @StuartNorfolk

The type of company you select would determine the nominal structure you are given.

You would select:
Sole Trader or Partnership if no corporation tax is paid
Limited Company If corporation tax is paid.

If you are a registered Charity then you would select the relevant Charity option.

I’m not sure that quite answers my query. It’s a CIC Ltd by guarantee that receives grant funding so doesn’t attract Corporation Tax. My question appertains as to whether the nominal codes vary dependant upon the type of company it is. in my case, a CIC that’s limited. But I’m guessing all excess/unmatched funding enters the reserve categorisation, but rereading your answer Quickfile seem to support variable nominal code structures.

Hello @StuartNorfolk

There is a slight variation to the nominal codes based on the company type you select.

You can edit nominal codes etc once set up.

It’s a CIC Ltd by guarantee that receives grant funding so doesn’t attract Corporation Tax.
(this rules out limited and charity limited)

If you are a registered charity select “Charity non limited”
If you are not a registered charity select “sole trader”/“partnership”

Okay, so given I can introduce my own nominal codes into the Quickfile account means I could set the company, CIC Ltd up with that in mind, but instead of Profits it would amount to ‘Undistributed Reserves’, because all the funding is derived from grants to be used up.

Does anyone else have any thoughts on this? Given I am setting up a set of company accounts for a CIC Ltd organisation when the only choices in Quickfile are Limited Company, Sole Trader, Partnership, Charity Limited, Charity Unlimited, and Landlord?

Any advice would be much appreciated.

Hello @StuartNorfolk

The overall structure of the chart of accounts remains the same on all company types

The main difference is the code variations listed under each section

e.g.
" Proprietors Drawings Account" on a sole trader
“Director’s Loan Account” on a Limited Company

There are many posts in the forum on how to deal with funds and CIC etc

“It’s a CIC Ltd by guarantee that receives grant funding so doesn’t attract Corporation Tax.”

You might want to check that.

"A CIC is liable to CT [Corporation Tax] as a company. It will be chargeable on any trading profits (but it will be a question of fact whether or not a particular CIC is trading) and on its investment income and gains.

“It is eligible for normal CT reliefs but there are no CIC specific tax exemptions/reliefs available.”

CTM40145 - Particular bodies: clubs: Community Interest companies - HMRC internal manual - GOV.UK

CICs are not charities. From the same source: “CICs may be companies limited by shares or by guarantee, or may be listed companies.” So the logical choice in Quickfile is “Limited company”.

(Not an expert, but I used to do some work for a social enterprise run by someone who had assumed that because they’d set the business up as a CIC, they wouldn’t have to pay tax. Turns out they were incorrect.)

You need to choose which of the company types is closest to your company setup, not all types/setups can be catered for.

I would recommend checking with an accountant for professional advice as we can only offer advice and we are not registered accountants nor bookkeepers.

Thank you and I appreciate your feedback. However, in this case the company (of which I’m part of) works on projects which are grant generated, and not trading income.

For your information I am only doing the bookkeeping aspects and not the end-of-year accounts. That is being handled by an accounting firm, but simple answer is that I could ask them for advice. It is really ensuring I’m posting payments and receipts to the correct nominal codes to minimise the bill we’ll receive at the end of the financial year.

Hi stuart

This may help?

We have several “not for profits” and you are correct that there is no Corporation Tax except on Bank Interest (if you get any :confounded:) and trading income. We just use the regular company structure - We don’t make profit so anything left over becomes reserves (I’m not sure I would flag it as “undistributed” as that could imply it is to be distributed (as oppose to spent) in the future.

You may also have issues with whoever is providing the grant funding if you have money that you have not spent unless you are able to explain it as a timing difference

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Thank you for that Chris. That’s really interesting. If you use a normal company structure for ‘not for profits’ do you generate an income and expenditure statement, and if so do you setup a nominal code for reserves as I don’t see a nominal for reserves.

Hi Stuart - to give you some context, we have residents who live in a block of flats. They all pay a service charge which is held to pay bills like electricity, cleaning etc. In this respect, the expenses are “pass through” so we are just holding the money (on Trust) on behalf of the owners. It’s sort of like the disbursements from a solicitor.

That means that we have 3 categories of income (plus bank interest and if it is high enough we would have to pay tax on the bank interest which is classed as trading income) and lots of expenditure accounts to show where the money was spent. If costs exceed income, we raise a balancing charge, and if income exceeds costs then there is no “reserves” as such but we could either return it to owners (unlikely due to the admin involved) or just hold it against the expenditure in the following year.

Sometimes there is a sort of “reserves” account called a sinking fund, but there are strict rules around how and when money can be put into and taken out of this and as it isn’t stipulated in the leases, we don’t use one

I don’t think you are correct regarding the tax position. I run a C.I.C./Ltd Company. It is not the same as being a charity, and if you spend less in a year than you received in your grant income, you will be deemed as having made a profit unless you mark it as a liability for the next year (i.e. work yet to be undertaken), and will pay corporation tax on it. C.I.C’s can make and distribute profits. What they can’t do is sell of assets for profit (hence the Asset Lock clause). And the reporting is slightly more complex. Other than that, what you have is a Ltd. Company, and it must follow all the appropriate rules and pay all the applicable taxes. Please get legal/accountancy advice before you get into trouble.

I do understand that, but thank you for your contribution.

Just further thoughts – I get what you mean, and I think this is the limitation of QuickFile to be honest. That they don’t cater for CIC’s (limited or unlimited). Therefore if you have signed up to Quickfile, Limited company format, and submit your own accounts you have to be careful you aren’t marking excess contributions/donations/grants as ‘trading income’.

Interesting article on different kinds of grants for CIC’s, and how HRMC treats them for tax purposes. Grant Treatments for Tax – Harris Accountancy Ltd

But it appears that in most circumstances, grant income for CICs is treated exactly the same as any other by HMRC. If you don’t spend it all, and don’t mark it as a liability for specific future work, then any surplus is treated as profit, and corporation tax is liable.

Thank you for the link. Invaluable information.