Academies and free schools are not liable to corporation tax but trading activities carried out to generate extra income could, in some circumstances, create a corporation tax liability.
While opportunities for exemptions exist, academies and free schools with a trading income that is regularly close to, or exceeds, an HM Revenue & Customs limit of £50,000 a year may want to consider using a subsidiary trading company.
The income and profits of a subsidiary trading company would be taxable in the same way as the income and profits of any ordinary limited company and it would also be treated as a normal business for VAT purposes.
But the subsidiary trading company can give all or part of its profits to its parent academy or free school and claim tax relief for those payments, which means it does not have to pay corporation tax on the profits it donates.
In this complex area, Haslers can provide expert advice to ensure that academies and free schools structure their trading activities in the most corporation tax-efficient way.
To find out more about Haslers’ East London and Essex-based accountancy and tax services for academies, free schools and independent schools, please contact us.