The Charity Commission has withdrawn guidance from its website regarding the payment of Gift Aid beyond distributable profits from charity trading arms to the parent charity.
Some charities own subsidiary trading companies through which they carry out trading activities for a profit. The subsidiary may donate some or all of its profits to the charity. Depending on the amount so donated, the subsidiary reduces or eliminates its corporation tax liability for that year.
This may result in breaches of company law under the Companies Act 2006. ICAEW has produced technical guidelines to provide more information for members.
In the event that taxable profits of the trading subsidiary exceed distributable profits, for example through timing differences and the differing treatment of certain expenses, and the subsidiary then proceeds to donate to the parent charity an amount which is greater than the amount of distributable profits then, under the Companies Act 2006, the excess amount is likely to be repayable by the charity and adjustments will be required for prior incorrect payments.
This does not necessarily mean that affected charities will, in practice, need to repay money to the subsidiary, but affected charities will need to consider the implications for them in light of their own circumstances.
For more information read the technical guidelines. If you are concerned this could affect your charity please speak to your adviser.