It’s never a good moment when you receive an unexpected large corporation tax bill, particularly so in a charity, when funds are already stretched! This case study looks at how a simple oversight led to a £23,000 demand from HMRC, and how a closer look at the numbers changed everything.
The challenge: a £23,000 surprise
The charity had an annual income of around £400,000. It was financially stable, but like many non-profits, every pound matters. What’s more, the tax bill had come as a shock.
The problem centred on a project funded by a corporate partner. The income had been correctly treated as trading income, which is taxable, but the accountant had filed the corporation tax return with no costs apportioned to the work, meaning the entire amount was taxed as if it were pure profit.
The discovery: a hidden oversight
I had joined the charity as a fractional CFO to help strengthen budgeting, reporting and overall financial management. During a discussion with the Head of Operations, she mentioned the recent corporation tax bill and that their accountant had suggested setting up a trading subsidiary to handle future projects.
That advice sounded reasonable at first, but it also felt like there must be a simpler way. When I looked into the situation more closely, I realised the issue didn’t need structural changes, it could be solved by accounting for the relevant costs associated with delivering the project. It appeared to be more of an oversight rather than anything deliberate, but one that ultimately carried a significant financial cost.
The approach: uncovering the real picture
Working with the Head of Operations, we started to piece together what it had actually cost to deliver the service. Staff had dedicated a significant amount of time to the project, so I reviewed payroll data to calculate the employment cost associated with that work.
By apportioning those costs against the trading income, we found that the project had in fact made a small loss. The charity hadn’t earned a taxable profit at all!
Although I was there in an advisory role rather than as the reporting accountant, we worked with their existing adviser to amend and resubmit the CT600 based on the revised figures.
The result: a full refund with interest
HMRC reviewed the amended submission and agreed with the new calculation. The entire £23,000 corporation tax bill was refunded, with interest!
It was an enormous relief for the charity and a clear reminder that even small details in a tax return can have a big impact on funding.
The lesson: the value of proactive, specialist advice
The real learning from this case wasn’t just about one return. It was about the difference between reactive and proactive financial support.
The previous accountant had taken the simplest path for them, treating all trading income as profit and suggesting the setup of a trading subsidiary. But they hadn’t stopped to consider whether any costs could simply be apportioned first.
A more thoughtful approach saved the organisation tens of thousands of pounds. It also showed the team the value of having financial partners who take the time to understand how the organisation actually operates.
Final thought
While this example involved a charity, the lesson applies to any organisation. The right advice can make a real difference. Good advisers don’t just process numbers, they ask questions, challenge assumptions and look for the most effective solution.
If you’d like a fresh perspective on your financial setup or recent filings, book a free discovery call and we can look at it together.
