I am trying to set up a simple manager account to track donations made by members and tax refunds we get at a later date.
Justa simple tracing process will do so I can check the bank statement against the receipts and payments we make to charities.
For example if a member donates 5 we receive in our bank 1.25 at a later date.
Some donations do not get a tax refund so a donation of 5 will remain just 5 with no later payment.
I would like to report by member and see on the P&L how much has been donated with tax refunds and the refund received.
Is this possible using Manager tax codes? or should I just create income accounts codes? Creating sales invoices would be too time consuming so is there another method?
Tax codes are not appropriate, because these are for tax percentages applied to a sales or purchase amount. I would just use simple receipts. Allocate donations to a Donations income account and tax refunds to a Tax refunds income account. This assumes the tax refunds are not associated with specific sales or purchases.
@Gally, it occurs to me that we may all be missing your point. Why are donations associated with tax refunds? And why do you want to correlate members with tax refunds? In most situations, donors get a tax refund if there is some form of charitable contribution deduction, not the organization to which they donate. And if you are receiving some form of income based on how much your members donate to you, that isn’t a tax refund, even if administered by the tax authority. That is akin to a grant.
Can you explain the circumstances a little more thoroughly?
In the UK every Charity has the ability to collect money from people by reason of Gift Aid.
Gift Aid enable people to sign a declaration that they are a taxpayer and the the Charity can claim a 25% tax refund directly from HMRC without any further involvement of the donor.
In my case I collect the money and signed declarations which I pay into our bank account and then send a cheque with the signed declarations to our charity bank.
The tax refunds are paid directly into our Charity bank account and I am trying to keep a parallel record.
For a banking perspective our charity bank send us a statement by period to tell us how much money had been donated (deposited) and what claims they are making for tax refunds.
Some donations do not have signed declarations either because the person is not a UK taxpayer or the money is not identifiable to a person, e.g. raffle collection.
I was hoping I could use the %tax code to automatically calculate the refund (to be paid later) from the line item of the donation and allocate it to an income account.
Hope this explains the UK tax arrangement. It saves people having to make personal claims and gets the Charity 25% more income from a donation.
Thanks for the explanation. You have made two things clear:
The amounts you receive from HMRC are not tax refunds, as I suspected, because they are not repaying you for any tax you have paid. They are donations. Your tax law simply provides a way of collecting them conveniently through HMRC. You did not explain who is the source of the Gift Aid donation, but it does not matter.
You cannot use tax codes, as I said earlier, because there is no tax being applied to any sale or purchase.
You have a few options. You could set up special accounts for your members to track these donations. Or you could add a custom field to a receipt form for entering the donor’s name. That would let you sort or search transaction reports by name. Donations and Gift Aid bonuses identified with the same donor will come up together.
You should also consider whether this is one of those cases where a spreadsheet does an easier, better job of keeping track of which donations and HMRC payments go together. Since they are all donation income from your organization’s perspective, trying to force your accounting system to keep up with this may be more trouble than it is worth.
In effect they are. If the taxpayer makes a donation of 100 directly to a charity they are entitled to claim a tax deduction which results in a refund of tax. However, if the taxpayer (donor) makes the donation to Gift Aid instead and provides them with a declaration then the taxpayer is assigning their refund of tax entitlement to Gift Aid who collects it in place of the taxpayer.
Special Accounts won’t assist as the donations will never appear as Income, which it is, as it paid to Charities.
@Gally the simplest process for you would be this.
When you receive the donations allocate it to the applicable Donation Income account:
Donation - No Tax or Donation - Tax Refund
Then when you submit your cheque with the signed declarations to the charity bank, add two lines to the Spend Money which will acknowledge (take up) both the tax refund income and that it’s an outstanding debt.
Lets say you received during the month 650 in donations made up of no tax and refund tax.
At the end of the month you send a cheque + declarations to the charity bank. The Spend Money plus the additional lines would be (note the minus sign for the income account)
While the receipt from HMRC may be an assignment of someone else’s refund from a deduction, that doesn’t change the fact that it is not a refund of a tax paid by @Gally’s organization. So from the perspective of his organization, it is not a refund, but income. Indeed, your comprehensive example puts what you have called tax “refunds” into an income account, just where I said they belong.
In the end, you have ended up with everything exactly where I said it should be in my first response, except you have divided the donations into those with accompanying “refunds” and those without. Given that you also suggest tracking relationships between donations and “refunds” in a spreadsheet the same way I did, I don’t know why the separate donation accounts are even necessary. There is no harm to them, but no real benefit either.
At no time was it ever stated or claimed as a fact that it was a refund of tax paid by the organisation, that was just your unrequired assumed assumption.
Once again, it was never stated or claimed that the received tax refund was anything but income. In fact, in the opening post’s last paragraph its stated “or should I just create income accounts”
Sorry, but the original poster called them “tax refunds” in the opening post. Also, as so did you in your first response “Tax refunds income account”. My later responses just referenced that term so that there was clarity and continuality in the response. I didn’t start fighting with their terminology.
Except, your first response fails to answer or provide any solution as to one of the key requests - track tax refunds received at a later date against the previously submitted declarations so I can keep a parallel record.
No I didn’t state that at all, what I clearly stated was “as to tracking members activity” which was in direct response to the request in the opening statement - “track donations made by members” which is separate from the “(track) tax refunds we get at a later date”
Because it beings clarity and greater disclosure to the accounts but more importantly it totally eliminates a layer of analysis that needs to be done by the spreadsheets, so there are real benefits.
However, the point that you have not comprehended is that the term “tax refunds” is a generic term used within the Gift Aid / Charity sector for the “refund from HMRC”. So no matter what your focused perspective is on the term, the entire UK sector is not going to change its usage.
these are as you say diverted tax refunds of the donor. Donors who have a higher tax rate e.g. 40% or 45% can claim back the difference directly from HMRC when making their own tax return.
All the donations are relatively small amounts of 5 or 10 with relatively small refunds. My key aim over a spreadsheet is a simple period report.
One aspect I did not mention is that I will not enter the cheque I send to the charity as this come from another account. So the balance should always be equal to the external charity account.
We then ask the charity bank to make a donation to a charity on our behalf reducing our charity bank balance. I propose to enter this charity as expenditure in Manager and not the cheque I send. I will then have a parallel running total of our charity bank account.
It may not be exactly what manager was designed for but as long as it makes my life easier I am happy. Thanks for you thoughts.
@Gally - you initially wrote " In my case I collect the money and signed declarations which I pay into our bank account and then send a cheque with the signed declarations to our charity bank.
And now you have written "One aspect I did not mention is that I will not enter the cheque I send to the charity as this come from another account.
How can you “pay into our bank account” and “send to the charity . . . from another account” ?
I collect cash in envelopes from members who fill in their name and address on the envelope. I open these and pay the cash into another bank account from which I issue the cheque payment. I then send the cheque and envelopes to our charity bank who arrange to credit our account and reclaim the gift aid payment.
I just need to track the money in the charity bank which your proposal will offer.
When I request our charity to make a charity payment from our account I will record this as a spend payment from the manager bank account I am using to record donation receipts and gift aid refunds. manager will therefore, I hope give me visibility of our charity bank account all the time.
This is not a bank account I have access to or manage or control. Al I receive are statements of donations made which I have given them and refunds they have claimed and payments they have made at my request.
The only issue is that gift aid refund can appear in our account 3months after a donation was made, and I would like to report donations and refunds within the same period. So I was hoping your outstanding tax could represent the expected refunds at the time of donation and reduced when the actual refunds are recorded.
If it all gets too complicated I will abandon looking into using manager and use a spreadsheet.
Ok then it appears you need to setup two bank accounts:
One where you - pay the members cash into and from which you issue the cheque payment
Two where you - receive that cheque, reclaim the gift aid and make the charity payment
That cheque payment from one into two would be an “Inter account transfer”
