Since I joined the space, there’s been a muttering that we shouldn’t be paying corporation tax, but no one’s been quite sure why that is, as we are officially a ‘Private company limited by guarantee without share capital’ which roughly translates to not-for-profit, though this isn’t an official designation in the UK.
I think I’ve found the background to these mutterings, though it doesn’t apply to us as our constitution currently stands. I’ll try and explain in brief.
Rule of Mutuality:
It is a basic principle of taxation that you cannot make a taxable profit by trading with yourself, and this means that in the case of a company which is owned by its members and which exists to provide them with (for example) facilities, any profit made from the fees paid by the members is not liable to tax.
What this means to us
On this basis, it would look like we should not pay tax on our membership takings, however our constitution states that if our company (The Hackspace) were to dissolve (close) then we would transfer all our possessions to another entity with similar aims to our own, e.g. another Hackspace.
For the rule of mutuality to apply, the finances of the space, and all its assets would need to be distributed back to its current membership. As our constitution says we can’t do this, this is not a loophole by which we can get out of paying corporation tax.
There may be other loopholes that mean we don’t need to pay corporation tax, but so far I have been unable to find them after a fair amount of researching. Last year we paid ~£700 corporation tax, which equates to roughly 5% of our yearly spending money once we’ve paid rent and utilities.
We could change our constitution so that the rule of mutuality applies:
We wouldn’t pay corporation tax, saving about £700-1000+ a year depending on annual profits.
There could be knock on effects we aren’t aware of.
It could make us more vulnerable to asset stripping - though upon dissolving the company the assets would be shared between the entire membership, not just the board of directors.
It could make it harder to apply for funding - though currently we don’t apply/qualify for much anyway.
There would need to be some differentiation of money spent my members in the space, vs money spent by visitors. E.g. if we sold 20 sodas to visitors at a public event, these would be taxable. Whereas 20 sodas sold to members would not be taxable.
I’m not suggesting anything at this stage, just recording my findings to avoid anyone needing to repeat my research. If anyone wishes to build on this or offer advice then please do.