Can A One Man Business Accept Cash Donation?

[EDDIE51]

My son is a self employed photographer. He has been doing a lot of unpaid work for small local charities. A local benefactor has asked him if he would accept a donation from her so that he can do more free work for charity.
The amount she mentioned is £10,000 to £20,000.
This is genuine, I have checked the person out ( she has just given £50,000 to local schools to fund music teaching)
The question is, if he accepted this money, what would the legal consequences be? tax for example?
Also the woman is elderly so if she died would he have to pay inheritance tax ? she owns several houses so the estate will be liable for tax.
We are struggling with the moral implications of this, let alone the legal side.
Could he become a charity so that he can use the cash for free work? Any input welcome. He has not agreed to accept the cash yet.

[Zacs-Master]

What's the point? Why doesn't she just give the money to the charity. They could then pay him for the work?

[bednobs]

have to say i agree with zacs. Or she pays him for the jobs he does for the charity

[BlackadderV]

A donation is a donation. There are no tax issues involved, income, inheritance or otherwise. It is a gift, bite her hand off!

[buildersmate]

Irrespective of the donation, it is business income so he declares it for tax purposes. What the donor expects him to do in return is between him and her.
No, he can't simply become a charity - too complicated.
I agree with Zacs, why doesn't she just give the money to the charities, then they could pay him for his work, if he is OK with earning money from it.

[TonyV]

Just needs to show money in and expenses out in his accounts so that he can show where money has gone. HMRC may see it as income though which effectively it is.
Zacs he will be working for several local charities not just one

[New Judge]

Blackadder is correct as far as your son is concerned. However, the donor may be liable to have the gift included in her estate for inheritance tax purposes should she die within seven years.

[buildersmate]

It isn't that simple blackadder. The sums mentioned far exceed the annual gifts that can be made without it being treated as a potentially exempt transfer. The donor would have to live 7 years else estate is due to pay IHT on this gift. Better to treat it as a payment for services.

[TonyV]

Buildersmate my only thought about the donation going straight to charities is that some may have greateR or lesser needs for his services. If it's treated as income for commission work then that will keep it straight? Maybe donor may have some specific charities she would like to promote?

[bednobs]

i can't see how he would keep it "straight" - she gives a donation of 10k in anticipation he'll do 10k's worth of work for it. However, what if her idea of 10k's worth of work is very different to his? he would have to make a charge for each job - nd what's the difference of that to just getting paid to do the work?

[BlackadderV]

But even if it is subject to Inheritance Tax, that is not the donee's problem. The estate sounds to be far, far larger than the amount mentioned.

[TonyV]

Bednobs my using "straight" was a word trying to keep both sides happy, but as you say donors idea of say £100 of work and actual cost may differ. Other side is that photography is a very difficult profession to get set up in and a donor may help him on his way

[BlackadderV]

A rich old lady gives £x to someone in the expectation of performing charitable work. If she dies within 7 years then £x maybe subject to IT, which would come from HER estate, not the gift donated. There are no legal implications; the only moral implication would be if he took the money and then did not fulfil the lady's wishes.

[bednobs]

that was my use of straight too - i didn't mean to imply the son was crooked :)

[TonyV]

Ok Bednobs the normal problem with the written word, not always read how it was written. But potentially a good opportunity I think

[EDDIE51]

The lady has not specified that the money has to be used for charity work. She says she has seen some of the charity work he has done and is impressed with it. She says she wants to 'help' him , he assumes that she means for him to be able to do more of the same thing if he does not have to worry about the cash side of it. He has to earn a living , the photography is his only source of income.

[TonyV]

I would gracefully accept the offer, but so your son feels morally ok, make sure lady understands that he will be using it a source of income. You do say she wants him to do more of the same ie unpaid charity work

[ubasses]

I think something in writing needs to come with the money, if it says something along the lines that she is giving it to the Business as a payment to enable him to continue working for the charities for free, it would be seen as taxable income. If, however, it said that she was so pleased with the services that he gave to charities and she wanted to present him with some money that would be seen as a gift for tax purposes. If a gift and she died within 7 years and there was enough money in the estate to cover IHT including all gifts the executor would pay it. If after adding gifts back in there was not enough then he would be asked along with other donees to contribute. If the estate was below IHT at death but the gifts sent it over then each individual receipient would be liable for their own tax.

[Ellipsis]

What BlackadderV and New Judge said.

Well done to your son; his altruism has delivered a benefactor. Don't feel guilty about it. Accept and use it in the spirit it's offered.

[buildersmate]

Good answer ubasses, and it covers off both the IHT issue, which I and others alluded to, but also how to get around the issue of the money being seen by HMRC as income for the OP's son.

Its a really interesting question and I spent a little time researching this today, but couldn't find anything definitive in HMRC files about when a 'gift' (that I think we all agree is not income for tax purposes) becomes a 'payment for services (either explicitly or implicitly)'. Most of us, I trust, would agree the later is taxable for the recipient.

By making a specific statement that it is a gift to express pleasure for services done only, that probably nails it. I don't think any reference should be made about future expectations of volunteering.

The last thing I comment is that the very charitable lady would not be able to claim personal tax relief on this gift, because it is not going to a charitable beneficiary, whereas the money she donated to the school (probably) is. She may not be bothered about that however.