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I own and run a small limited company in the UK. Via one of our associates, we were recently approached by a 3rd party asking for help in paying medical bills for treatment that was not covered by an insurance.

To make the long story short, the company can and is willing to pay these medical bills (the amounts aren't that large).

I have basic account knowledge and for the last few years have been running company accounts myself. Yet I am struggling to understand how this payment would work. Obviously, I can record it as a cash expense, but I'm not sure how it would work from a tax point of view. As far I see, it's essentially a charitable payment, but there is no charity involved - the payment would be made directly to the hospital.

Things to note: the 3rd party is not related in any way to the company and is not a UK resident; the medical expenses are for treatment in a UK hospital; the payment would be in GBP directly to the hospital.

My question is: what are tax implications of this payment?

UPDATE: some more details. The associate is someone I met some time ago when travelling in that country. Our relationship is limited to occasionally referring business each other's way. There is no contract, no minimum referrals and certainly no compensation of any kind. Basically, he's a friend that lives in another country. The 3rd party is a relative of his. That country being 3rd world, they can't possibly afford UK medical costs, hence he asked me for help.

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    I think we need to understand why the company is willing to pay bills for an unrelated third party. The assumption from anyone looking at this like HMRC will be that it's some kind of disguised benefit for some individual associated with the company. – GS - Apologise to Monica Apr 11 '17 at 11:44
  • My thoughts exactly about HMRC. @GaneshSittampalam I updated my question with more details. – Aleks G Apr 11 '17 at 12:27
  • You may want to consider making an arrangement with a UK charity where you would donate the necessary amount for the specific purpose of covering medical costs of that particular person; in that case the donation will be tax-deductible. – mustaccio Apr 11 '17 at 12:51
  • @mustaccio Thanks. That frankly was my first thought. I'm finding it hard to understand what's in it for charity though. – Aleks G Apr 11 '17 at 12:52
  • Some charities may be genuinely interested in, you know, helping people from developing countries get quality medical help that's not available in those countries. – mustaccio Apr 11 '17 at 12:59
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According to HMRC's manual BIM42105, you can't deduct expenses of this kind when calculating your profits for corporation tax:

No deduction is allowed for expenditure not incurred wholly and exclusively for trade purposes

So at the least, the company will have to pay corporation tax on this donation at some point, assuming it ever makes any profits.

There's also the risk that HMRC would say that what is really happening is that you are making a personal donation to this person and the company is giving you income to allow you to do it. In that case, you'd be liable to income tax and employees national insurance, and the company liable to employers national insurance. It should then be deductible from corporation tax, though.

  • Ok, thanks. That does kind of makes sense. What would differentiate the company making a contribution to 3rd party vs me personally making the donation and the company compensating me? – Aleks G Apr 11 '17 at 12:49
  • By the way, without this payment, the company would make a profit, but with it, probably not. – Aleks G Apr 11 '17 at 12:49
  • I can't find any clear references either way on this, but if you control the company and there's no reason associated with the company's business for it to do it, I suspect most people would see it as being really you making the donation. – GS - Apologise to Monica Apr 11 '17 at 17:10
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One possibility to consider would be making an arrangement with a registered UK charity where you would donate the necessary amount for the specific purpose of covering medical costs of that particular person. Charitable donations are expressly deductible from business profits.

Some charities may be genuinely interested in helping people from developing countries get quality medical help that's not available in those countries. There may be some organizations in the proposed beneficiary's country that have contacts among the UK charities.

PS. I am not a lawyer or an accountant, nor do I claim to be either. The above is not a legal or accounting advice. Consider seeking professional assistance.

  • The questions I'd want to answer before trying this are (a) is funding a specific individual's medical treatment really charitable, no matter where they are from? (b) can you fund a charity to do that one specific thing and have it still seen as a gift (lookup "conduit funding")? – GS - Apologise to Monica Apr 11 '17 at 18:08
  • For (b), since the donor does not conceivably get any material benefit from the donation, neither personally nor as a corporation, I think it qualifies as a gift all right. As for (a), if the beneficiary is vetted by charity in question and qualifies according to their criteria, I don't see a problem there either. Intrinsically what we are discussing here is a charitable act. – mustaccio Apr 11 '17 at 18:30
  • I'd be looking for a good legal source before relying on that :-) – GS - Apologise to Monica Apr 11 '17 at 19:03

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