Aim
To understand what is a non-primary purpose activity and a primary purpose activity, and to be able to flag activity codes appropriately.
Why does the University produce a tax return?
- HMRC require that the University prepares an annual corporation tax return. It analyses out income and expenditure on activities which are non–primary purpose (taxable).
- Any surplus on non-primary purpose activities is potentially taxable.
Non-primary purpose activity (trading / taxable)
- Income that does not meet the criteria of a primary purpose activity
- Falls outside of the University’s charitable purposes
- Does not meet the public benefit test**
- Includes closed courses
Primary purpose activity (non-trading / not taxable)
- Indicated by the governing documents of a university as falling within its charitable objects; and
- Has a charitable purpose* as defined by Charities Act 2011; and
- Is supported by existing case law principles
- Must meet the public benefit test**
*Charitable purpose definition includes the advancement of education
**Public benefit test has two principles: there must be identifiable benefits, and these must be to the public or a section of the public
Activity code flagging
- HMRC require a surplus or deficit calculating on non-primary purpose (taxable) income.
- To enable this, all activity codes included in other income as set out in note 4 to the financial statements (and in the examples below) must be flagged as either trading / non-trading within the activity code set up.
- Balance sheet codes do not need to be flagged – the exception to this is WK endowment codes as they also have income and expenditure on them.
- Using the codes as usual, income will be posted to the relevant code together with expenditure relating to that income (where possible – it is understood that salaries costs are often posted centrally and an estimate of these may be required).
- There cannot be mixed income on the one code, separate codes are required for trading and non-trading income.
What if an activity makes a surplus?
If an activity makes a surplus, the School may potentially be charged corporation tax.
Primary and non-primary purpose examples
Non-primary purpose activity examples:
- Consultancy
- Room and facilities hire income or conference income from commercial companies or the public
- Income from provision of catering services to the general public
- Public sport admissions income
- Ticket sales to the public (eg. Jodrell Bank admission unless under gift aid)
- Non student lettings or provision of hotel type accommodation to the general public
- Income from sale of items at a shop (eg Museum shop)
- Recharges to commercial companies
- Income for testing from commercial companies
- Advertising income
- Commission from service providers in delivering services to the public
Primary purpose activity examples:
- Research activity
- Fees received from students for education
- Grants or sponsorship income
- Royalty income
- Donations
- Licensing or sale of IPR income
- Staff or student sport admissions income
- Room hire income from staff or students
- Rental income (including halls)
- Income from provision of services to students or staff on campus such as catering, accommodations, vending machines, car parking in support of education activities, photocopying and internet facilities
- Income from sale of books by MUP
- Ticket sales to staff or students (student production)
- Laundrette income (where located in halls of residence)
- Conference income from visiting academics on educational or research topics
- Commission from service providers in delivering services to students
- Chargeable gains (so long as applied to charitable purposes)
- Investment or dividend income
- Income from sale of University merchandise
- Recharges to students, subsidiary companies or SU
- Jodrell Bank admissions donations (ie. under gift aid)
- Income from stands at a student related job fair