A Brief Guide to Corporation Tax
Corporation tax is a tax payable by corporate bodies on any profits they make. The University is a corporate body and is therefore in principle subject to corporation tax on any surpluses made. However there are extensive reliefs available to charities which in most cases remove any corporation tax liability.
On this page:
Charitable Activities Relief
The main corporation tax relief applying to the University is an exemption available to charitable bodies on any profits arising on charitable activity. In the University context, charitable activity is:
- the provision of education;
- research where the results are made publicly available; and
- services that are beneficial to the community including the provision of health related activity.
It is important to remember that the relevant test is whether the activity that gives rise to the profit is itself charitable, not how the profit will be spent.
E.g. The provision of consultancy is not a charitable activity and is liable to corporation tax even if the income derived from the consultancy will be used to support educational activity.
Non-Charitable Activities
Areas that are non-charitable and therefore could give rise to a tax charge include:
- the provision of consulting;
- testing facilities; or
- sales of goods that are not "educational".
Where a department undertakes such activity and it generates a profit, the tax department should be consulted. In some cases, it will be necessary for the activity to be transferred to the University's trading company: Cambridge University Technical Services Ltd (CUTS). The effect of routing activity through CUTS is to remove the tax charge.
Students' Activities
Exemption from Corporation Tax also covers non-charitable activity where the activity is undertaken by the beneficiaries of the charity. The beneficiaries of the University are students so any profit making activity in the University that is undertaken by students is exempt from the tax.
CUTS (Cambridge University Technical Services)
Cambridge University Technical Service (CUTS) is a wholly owned subsidiary of a Cambridge Enterprise Limited. By using CUTS, the University is able to avail of charitable tax reliefs to ensure that full economic benefit of profitable consultancy work flows through to the University.
CUTS is administered by the staff of Cambridge Enterprise and has no employees. CUTS has a separate VAT number to the University and undertakes work in lieu of the University where the work is not deemed charitable. This is primarily for the provision of consultancy work by University staff. CUTS also acts as a billing service for private medical practice, performed by University staff that have clinical responsibilities in the National Health Service. .
Details of how to use Cambridge Enterprise Consultancy Services and CUTS
Cambridge Enterprise Consultancy Service:
- undertakes due diligence;
- negotiates fees, terms and conditions;
- draws-up contracts between CUTS and the client;
- invoices the client, collects income and chases debt.
Consultancy services charges a management fee of 12.5% from collected income.
Twice per year, CUTS transfers designated income to the University, which is then rolled back to the originating department.