I have a question about distributing profits. Our articles of association outline that we donate a portion of any profit to other cooperatives or common ownership enterprises, as well as of course charitable projects (we adopted the sample articles from the seeds for change / radical routes how-to booklet!)
We are now in a position to do so, so beginning to look for places to direct some funds. Our accountant isn’t sure of the implications of donating to another workers’ cooperative, since it wouldn’t be registered as a charity, rather would be monies passing from one limited company to another.
Do any more established coops have experience with this? Is it just that there will be a corporation tax implication on any donations that aren’t going to a registered charity? Or is it something we do in the form of grant giving?
Any help, stories, examples, tips, much obliged!
I’m not best places to answer this but if we were in your position my first thought would be “which other co-ops that we would like to support can we buy shares in?”
You donate from your post tax profits so you can give to whoever you like in line with your governing document. If you donated to a charity they might be able to claim gift aid on the CT you paid, or there might be a way of reducing your CT bill based on the charitable donation.
Seeking to pay less tax is a red herring and shouldn’t be the sole basis of your decisions IMO.
Buying shares isn’t a distribution of profits, it’s an investment but a really good call
Hi both, thanks for the tips and clarification!
I kept my post to the simple question of what to do with operating profits to spare some gruesome details but ours is a slightly different situation so in hindsight might’ve been helpful to share for advice!
We’re an art bookshop where a lot of our stock is carried on a sale or return basis — this is so we can operate an open submission policy and not have to turn people’s work away based on ‘sellability’ — but what it also entails is that a surprising number of people never claim their proceeds despite receiving regular sales reports. So we introduced a term when we enter into stocking agreements that if the money isn’t claimed after a year from the date they were notified of sales then it will be donated, rather than let it become part of regular cash flow. Since, it’s not our money in the first place!
As a disclaimer if this sounds ridiculous, people agree before sending books and get reminders of this every time we send out a sales report. Internally, we agreed that if someone came out of the woodwork having missed the email, changed contact details or other such scenario, we would pay them what we owe and take the burden but after many years of running this shop before incorporating that’s a very very rare occasion, and these days we’re racking up nearly 2000£ of unclaimed sales a quarter!! So that could become a massive amount of liability if allowed to roll over time and also a nice sum to distribute. Some people request that their sales go to donations too.
Shares wouldn’t work in this scenario since money would circle back to us on returns? Effectively we’re wanting to disperse with what should be an ordinary expense of selling someone’s book and we’ve already made our revenue/commission from it. Sadly we’re not actually at the point of having operating profits to distribute as we’re still working towards a reserve, we hope next year! But thanks for clarification that it’s done post-tax, that makes much more sense than what the accountant was summising.
I suppose I could basically write the liability for unclaimed sales off so that the quarter in question’s total enters into the year’s operating profits, then donate the sum post tax and as you say, any charities we send money to could claim the corp tax back on gift aid.
Sorry for the long winded explanation. Any other tips or ideas very welcome.
That’s a really interesting use case @Jess_Good_Press! Do you rely on any Open Source software? WAO, of which I’m a founding member, decided to support the Etherpad Foundation this year with a donation as we use their software on a daily basis.
Ah! We don’t really use a great open source software, for our sins! But a good shout, thanks Doug!
@Jess_Good_Press Hi Jess, if you’ve time early next week pop round the corner and join us at our Glasgow coops meet up on Tuesday 4 July at Mono at 5.30pm. We can get you on our local Signal group too for notifications & updates about local coop stuff.
@louise Oh great! I’ve been meaning to check in when they’re running. I’m away visiting family next Tuesday all the way down in sunny Devon but I’ll head along in August!
Excellent - have a lovely time in Devon!
I won’t be around in August but others will and I’ll catch up with you sometime in the next few months anyway …