October 9th, 2017 / Insight posted in Articles

FRC Consultation on Gift Aid payments for trading subsidiaries

Late last month the Financial Reporting Council (FRC) released a consultation with a view to amending the accounting treatment of Gift Aid payments of profits made by trading subsidiaries to parent charities. The consultation runs for a very limited period with comments due by 20th October 2017.

The proposal, in essence, suggests that the Gift Aid payments should not be treated as a gift in the year, but instead treated as a dividend in the subsequent financial period. However, the proposal also suggests that the tax relief on the Gift Aid payment can continue to be relieved in the prior period. Therefore, there will be no tax charge recognised on the profits to be paid as Gift Aid.

This will result in a very significant change in the way trading subsidiaries present their financial statements and will require a prior year adjustment in the first year that the new treatment is adopted. Kingston Smith will be responding to the consultation strongly recommending that the current practice, accounting for the payment as a gift in the year the profits are earned, is retained.

We feel that treating the payment as a gift:

  • reflects the substance of the transactions (rather than a strict legal interpretation of them); and
  • reflects the fact that the payment of profits up to the parent charity represents a constructive obligation on the trading subsidiary to do so.

We would encourage you to respond to the consultation which can be accessed from the FRC’s website here. Responses should be sent to ukfrs@frc.org.uk.

We would also be very interested in hearing your views. Please email them to nfinlayson@mks.co.uk.