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Posted Tue, 12 Apr 2022 18:26:22 GMT by SpectrumConnectionCIC
Hello, We are a very small CIC with an annual income of around £14,000. Most of our income is from a grant from the National Lottery of £10,000, which was received in July 2021 and so is due to be fully used by July 2022. Our financial year runs from January 2021-January 2022. When I'm completing the tax return (CT600) in our accounting software (FreeAgent) it's showing that we will owe £890.72 in Corporation Tax, but if we pay this from the grant this means we won't be able to use the grant as intended. I don't think it counts as a donation as it says in the guidance, "This box is for relief on donations to charities, Community Amateur Sports Clubs (CASCs) and, grassroots sport" but we are a CIC and have no relation to sports. We are not sure how to proceed with completing the tax return, please can someone advise? Thanks, 
Posted Tue, 10 May 2022 15:19:39 GMT by HMRC Admin 2

If the grant income was used in the course of trading then it is taxable. However, in accordance with accounting principles, the grant should only be recognised in the profit and loss account as it is used.  Any balance should be shown as a reserve. This will mean that the income from the grant is matched by expenses and so no corporation tax will be payable on the grant income.

You can find lots of information about trading and income and expenses in HMRC's Business Income Manual via the GOV.UK website.

Thank you.

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