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Where Taxpayers and Advisers Meet

Corporation Tax

Lymefossil
Posts:3
Joined:Sun Nov 19, 2017 2:20 pm
Corporation Tax

Postby Lymefossil » Sun Nov 19, 2017 2:36 pm

Good afternoon, I would be grateful for any advice on the following.

I live on a private estate with circa 100 properties. The estate is in excess of 300 acres and takes some managing. Therefore a number of years ago the residents got together and formed a limited company to purchase all the land and form a management company with 100 shares. The only shareholders are residents. The rationale is that an external management company would levy charges allowing them to make a profit which would potentially see ever increasing service charges. The estate residents do a lot of the work on the estate themselves on a voluntary basis and tender out for work beyond the skill set of the residents.
One area that clearly requires external contractors is road maintenance, hence there is a reserve fund that is accumulating ready for when major road repairs will be required. This reserve fund is created by income from service charges and leasing of some of the land to farmers. This means the Management company is making an annual profit which is taxable. As the whole concept of forming the company was to keep costs to residents down it seems somewhat ludicrous that we have paid tax in to the tens of thousands in the last two years. Ultimately over a period of time each household will have contributed 4 figure sums in service charges that directly go in tax.

----- Is there a way of creating a separate line item on the service charges that is allocated for road maintenance that effectively does not form part of the annual turnover/income so is not taxable?

----- Or is the only realistic way to reduce tax liabilities to perform road maintenance in smaller chunks every year thereby bringing the annual profit close to zero as opposed to building a road maintenance "war chest' to fund the inevitable potential 6 figure sum to do a big road maintenance project in a number of years time?

I appreciate this is a very loose description of the issue, but any advice/thoughts would be gratefully received.

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Corporation Tax

Postby Lambs » Sun Nov 19, 2017 5:40 pm

L,

Paying tax on any profits on the rents charged to farmers is one thing; if the company is also making a 'profit' on the contributions by its members towards a sinking fund for future repairs, then I think something is wrong. Did you not take advice when you set the company up?

Regards,

Lambs

Lymefossil
Posts:3
Joined:Sun Nov 19, 2017 2:20 pm

Re: Corporation Tax

Postby Lymefossil » Sun Nov 19, 2017 6:25 pm

Lambs,

many thanks for your comments, the issue is that the company has been set up with a very well meaning board of directors, but unfortunately they take "questions" as criticism. A number of people have questioned why we are paying so much tax. The usual reply is "You don't understand", so I am trying to arm myself with greater knowledge to put forward a more constructive set of comments too the board with suggestions as opposed to just "Why are we paying so much tax". Appreciate your thoughts

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Corporation Tax

Postby Lambs » Mon Nov 20, 2017 9:12 am

There are special rules for flat management-type companies; also for mutual concerns. As a shareholder in the company, you would be entitled to see the accounts of the business and to approve them, no?

As regards "mutual" companies, see

https://www.gov.uk/hmrc-internal-manual ... l/ctm40955

which confirms that the surplus derived from mutual activity should not be taxable.

Regards,

Lambs

Lymefossil
Posts:3
Joined:Sun Nov 19, 2017 2:20 pm

Re: Corporation Tax

Postby Lymefossil » Mon Nov 20, 2017 10:29 am

Lambs,

very helpful, I appreciate your time in pointing me in the right direction.

Regards
Lymefossil


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