The Financial Reporting Council has proposed a solution to problematic guidelines on Gift Aid payments from subsidiaries, and is seeking feedback.
Traditionally charity trading subsidiaries have gift-aided their profits to parent charities in order to avoid being liable for corporation tax.
However, guidance issued by ICAEW in 2014 concluded that such payments represent distributions to the subsidiary’s equity investors, forcing them to be recognised in a subsequent financial year. This had the knock-on effect that the payments would no longer negate the corporation tax liability in that year.
Although charities are able to adopt workarounds to solve this problem, the FRC has offered a simpler solution via the introduction of FRED 68. It proposes that Gift Aid payments may be recognised in the accounts “when it is probable that they will be made in the nine months following the reporting date”.
FRED 68 also discusses other aspects of the accounting for the expected gift aid payment.
The FRC expects to finalise these proposals alongside those in FRED 67, and their proposed effective date is accounting periods beginning on or after 1 January 2019, with early application permitted provided all of the amendments are applied at the same time.
Responses should be sent to [email protected] by 20 October 2017.
Full details of the problem were outlined in a technical briefing article in the May issue of Charity Finance.
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