Corporation Tax

[Rodent1982]

Hi all,

I've been working on an idea for 4 years now the brief is below:

Companies X, Y, and Z pay me for a service. 2% of that money will go to the credit card processing people, 40% will be awarded as prizes to Joe Public. The rest will be taken out in dividends between my wife and myself.

The prizes are part of a 'competition' (no entry fee, and there IS an element of skill involved, thus differentiating it from a lottery).

My question is, how does Corporation Tax work in this instance?

Is the 40% liable for corporation tax? If so, does anyone have any ideas of how to *cough* avoid corporation tax for this amount.

The rest, I presume corporation tax will be liable... or will it?

Very confused

Your help greatly appreciated.

 

[Zeno]

I read this on the general forum and still don't understand it.

What are the companies paying for and why are you awarding prizes?

 

[Rodent1982]

Need it matter? The concept is there. The business idea I'd like to keep private for the time being as it's rather unique and will be a fantastic earner, at least for awhile.

Of 100% money in:

2% goes to credit card charges
40% is a 'prize pot'
60% is actual profit, which I'd like to take out in dividends

Corporation tax due on 98% (prize pot & actual profit) or 60% (just actual profit) or 40% (just the 'prize pot')?

Sorry to be vague, but as I've said it's a unique idea which will take me awhile to get going, I'd rather not have someone on here nick it and get it going before me.

 

[Zeno]

If the prizes awarded are genuine costs the the tax will be due on the 58% after credit card charges (you appear to be ignoring other overheads, costs & salaries so I will too for now).

 

[Rodent1982]

God I love my mathematics.

 

[Rodent1982]

What constitutes 'genuine costs' in your view?

Thanks for the reply btw.

 

[hendyphilhendy]

What constitutes 'genuine costs' in your view?

Thanks for the reply btw.

Agree with Zeno - The genuine cost would presumabley be a prize given out.

i.e. The monies received are turnover, the prizes given, whether cash or goods would be a cost of sale. The prize is the incentive for receiving the income.

 

[Zeno]

If you, your wife or other members of your family amazingly won these prizes I would suggest they were not genuine costs for example.

 

[Rodent1982]

Brilliant thanks guys

 

[Zeno]

The prize is the incentive for receiving the income.

What is confusing me though is that the OP states that the money received will be for a service.

 

[Rodent1982]

The service wouldn't exist if it wasn't for the prizes

 

[hendyphilhendy]

What is confusing me though is that the OP states that the money received will be for a service.

Agree having reread it. I assumed that the companies that paid money were entered into some kind of draw and they would be eligible for the prizes.

The opening post doesn't necessarily imply this. i.e. Two companies pay in but the prizes go to someone else. This would leave a different slant on it!

It also reminds me a bit of certain Nigerian lotteries that I have won recently. If I get round to claiming I'll be rich, rich, rich!

 

[Rodent1982]

Oh,

Yes various companies pay money for a service, but the prize goes to other individuals not connected to the companies, or myself.

This changes things?

 

[Zeno]

I suppose it very much depends on how the service relates to the prize awards. We can appreciate that you don't want to give the game away but maybe you should speak with an accountant who will be professionally obliged to keep his trap shut.

 

[RAL]

Oh,

Yes various companies pay money for a service, but the prize goes to other individuals not connected to the companies, or myself.

This changes things?

If the prize will be awarded for the business purpose, i.e. advertising purpose etc, then this prize amount is deductible for the tax purpose. However the prize may be taxed on individual.