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The use of gift aid to protect the profits made by charities’ subsidiary trading companies.
KEY POINTS
- In 2000 charitable donations became deductible as qualifying gift aid payments.
- Gift aid payments from a trading subsidiary to the charity are tax deductible if conditions are met.
- The subsidiary must have distributable reserves to cover the payment.
- Deeds of covenant may help counter the effect of financial reporting standard 102.
Many charities use subsidiary companies to undertake trading activities and shelter the profits of those subsidiaries through gift aid payments to the parent charity. Recent developments may result in gift aid payments having to become somewhat more formalised if they are to continue to be effective.
Life before gift aid reform
In the past deeds of covenant were the standard method used to shelter from tax the profits in trading subsidiaries of charities. These became redundant...
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