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Clause 182: Assets etc referable to UK trade
734. This clause determines the extent to which amounts are referable to a company’s “UK trade”. It is based on paragraph 5F of Schedule 18 to ICTA.
735. Paragraph (b) of the clause excludes amounts attributable to activities that are “double taxation exempt”. That expression is defined in clause 186.
Chapter 7: Miscellaneous provisions and interpretation of Part
Overview
736. This Chapter contains definitions and two minor rules.
Clause 183: Payments for group relief
737. This clause takes outside the tax system any payments for group relief. It is based on section 402 of ICTA.
738. Originally (from 1953 to 1967) a form of group relief was available, based on “subvention” payments from one company to another. The payment was allowed as a deduction, reducing the profits of the paying company; and it was a taxable receipt of the company receiving the payment. Such payments are no longer required by United Kingdom tax law. But they may be made by agreement between group members. This clause ensures that they are neither allowed as a deduction nor taxed.
Clause 184: References to “allowance” in CAA 2001
739. This clause clarifies the position if capital allowances are surrendered as group relief. It is based on section 411 of ICTA.
740. Capital allowances surrendered as group relief still count as having been made to the surrendering company. This means that a balancing charge on the surrendering company takes into account those surrendered allowances.
Clause 185: “Trading company” and “holding company”
741. This clause provides definitions. It is based on section 413(3) of ICTA.
Clause 186: When activities of a company are double taxation exempt
742. This clause explains what is meant by activities that are double taxation exempt. It is based on section 403D of, and paragraph 5F of Schedule 18 to, ICTA.
743. The definition is used in clauses 107(4), 108(3), 140(8), and 182(b).
744. Subsection (1) makes the link between the activities that are described in the Part as exempt and the profits from those activities which are the subject of exemption under a DTA.
745. Subsection (2) makes clear that activities are to be treated as exempt whether or not any necessary claim for exemption is actually made.
746. Subsection (3) defines “double taxation arrangements” by reference to clause 2 of TIOPB. They are “.. arrangements .. made in relation to any territory outside the United Kingdom with a view to affording relief from double taxation in relation to ..” the taxes within subsection (3) of that clause.
Clause 187: Meaning of “non-UK tax”
747. This clause defines “non-UK tax” for this Part of the Bill. It is based on sections 403D and 403E of, and paragraph 17 of Schedule 18A to, ICTA. The expression is used in clauses 106 to 109, 115 to 121 and 949.
748. Subsection (1) is the basic rule that the non-UK tax must correspond to United Kingdom income tax or corporation tax.
749. Subsection (2) makes clear that the non-UK tax need not be a national tax: it may be a tax imposed by a province or state of a foreign country.
Clause 188: Other definitions
750. This clause sets out definitions of expressions used in the Part. It is based on sections 6(4) and 413 of ICTA.
751. Subsection (2) defines “trade” so that it includes an office but does not refer to a company having a vocation or employment. See Change 4 in Annex 1.
Part 6: Charitable donations relief
Overview
752. This Part deals with qualifying charitable donations, known as “charges on income” in the source legislation.
753. Chapter 1 gives relief for qualifying charitable donations and defines the term as qualifying payments and amounts treated as qualifying charitable donations. Chapter 2 deals with qualifying payments and Chapter 3 is about disposals treated as qualifying charitable donations.
754. For corporation tax purposes charges on income are now reduced to charitable donations only (see section 338A(2) of ICTA). A more accurate description has therefore been substituted for “charges on income”. The term “charges on income” was dispensed with for income tax purposes by ITA and this Bill now follows that path.
755. It is not considered that by relabelling “charges on income” as “qualifying charitable donations” there is any danger of either depriving a company of a relief which is due or allowing relief that is not due for a payment.
Chapter 1: Nature of relief
Overview
756. This Chapter allows a deduction from a company’s total profits for qualifying charitable donations and explains what constitutes qualifying charitable donations. It is based on sections 338, 338A, and 339(1) of ICTA.
Clause 189: Relief for qualifying charitable donations
757. This clause allows qualifying charitable donations as deductions from a company’s total profits. It is based on section 338 of ICTA.
758. Allowable deductions are limited to an amount which reduces the taxable total profits for a period to nil.
Clause 190: Qualifying charitable donations: meaning
759. This clause gives the meaning of qualifying charitable donations. It is based on sections 338A(1) to (3) and 339(1) of ICTA.
760. Subsection (2) rewrites both section 338A(3) and section 339(1)(b) of ICTA. These two subsections cover the same ground.
761. A similar rule is found in section 337A(1)(b) of ICTA which provides that a company’s income from any source is to be computed without any deduction in respect of charges on income. This is rewritten and inserted into Chapter 1 of Part 20 of CTA 2009 (restriction of deductions) by Schedule 1 but expressed as a qualifying charitable donation rather than a charge on income.
Chapter 2: Certain payments to charity
Overview
762. This Chapter gives relief for certain payments of money by companies to charities. It is based on section 339 of ICTA.
Clause 191: Qualifying payments
763. This clause sets out the conditions which have to be met if a sum paid to a charity is to be a qualifying payment and hence a qualifying charitable donation. It is based on section 339(1), (3B), (3E), and (3G) of ICTA.
Clause 192: Condition as to repayment
764. This clause provides that under certain conditions a charitable payment is not subject to a “condition as to repayment” (see clause 191(3)). It is based on sections 339(3BA) and (3BB) of ICTA.
765. Subsection (6), in referring to non-charitable expenditure, rewrites the cross-reference to “section 505(4)” of ICTA in section 339(3BB) of ICTA as clause 493 and clause 515. Clause 515 rewrites section 505(4) of ICTA and clause 493 section 505(5) of ICTA. Non-charitable expenditure referred to in section 505(5) is, by implication, the same non-charitable expenditure as is referred to in section 505(4). It was considered helpful however to clarify in the rewrite that non-charitable expenditure in both the accounting period (section 505(4)) and previous accounting period (section 505(5)) are referred to by subsection (6).
Clause 193: Associated acquisition etc
766. This clause specifies circumstances in which a payment to a charity is prevented from being a qualifying payment because of association with an acquisition of property by the charity from the donor or an associated company. It is based on section 339(3E) of ICTA.
Clause 194: Distributions
767. This clause prevents a distribution from being a qualifying payment other than in the case of a payment from a company which is wholly owned by a charity. It is based on section 339(1), (1A) and (1B) of ICTA.
Clause 195: Associated benefits
768. This clause prevents one or more payments which result in benefits from being qualifying payments, unless the benefits are within the limits set out in clause 197 (restrictions on associated benefits). It is based on section 339(3B) of ICTA.
Clause 196: Associated benefits: meaning
769. This clause explains for the purposes of the Chapter when a benefit is associated with a payment to a charity. It is based on section 339(3B) of ICTA.
Clause 197: Restrictions on associated benefits
770. This clause sets out two conditions which, if either is met, mean that the restrictions on benefits associated with a payment to a charity are breached. It is based on section 339(3B), (3C), (3D) and (3DA) of ICTA.
771. The two conditions are:
- a stepped scale, depending on the amount of each payment (Condition A) - the “benefit per payment” test; and
- an overall monetary limit on benefits associated with the total of any payments to a single charity in the course of an accounting period - the “benefit per accounting period” test (Condition B). This is unrelated to the size of any particular payment.
772. Both these restrictions apply to any benefit “associated with” a payment.
Clause 198: Payments and benefits linked to periods of less than 12 months
773. This clause modifies the application of clause 197 where payments or benefits are linked to periods of less than 12 months. It is based on section 339(3DB), (3DC) and (3DD) of ICTA.
774. The clause provides, according to the case, for annualising:
- the actual amount of the payment; or
- both the amount of the payment and the value of the benefit(s) associated with the payment.
775. Only the annualised amount in each case is to be compared with the cash limits given in clause 197. This prevents periods of less than 12 months being used to exploit the cash limits.
776. Subsection (8) states the formula for annualising in each case. In the source legislation some of the conditions could overlap, so that more than one condition could apply to the payment(s) and associated benefits concerned. This subsection removes doubt about which might take priority by providing a priority rule where payments are made at intervals of less than 12 months. See Change 27 in Annex 1.
Clause 199: Payment attributed to earlier accounting period
777. This clause allows an election to be made for a payment to be attributed to an earlier accounting period which falls within a period of nine months prior to the date of the payment instead of the accounting period in which the payment is made. It is based on section 339(7AA) of ICTA.
778. Subsection (3) sets out the time within which a claim must be made. The reference in the source legislation to claims being to the Board of Inland Revenue has been changed. Claims will simply be to an officer of Revenue and Customs. See Change 5 in Annex 1.
Clause 200: Company wholly owned by a charity
779. This clause sets out what conditions are required to be met in order for a company to be wholly owned by a charity. It is based on section 339(7AB) and (7AC) of ICTA.
Clause 201: Associated persons
780. This clause defines an associated person as a person who is connected with the company or who is connected with such a person. It is based on section 339(7A) of ICTA.
Clause 202: “Charity”
781. This clause defines “charity” for the purposes of the Chapter and is based on section 339(9) of ICTA.
782. Section 339(9) of ICTA defines charity, in part, by reference to the bodies mentioned in section 507 of ICTA. That section includes the Trustees of the British Museum and the Trustees of the Natural History Museum. The British Museum and Natural History Museum are established for charitable purposes and so there is no need to refer to them separately in this definition.
Chapter 3: Certain disposals to charity
Overview
783. This Chapter gives relief to companies making donations to charities not by payments of money but by way of certain disposals including disposals at an undervalue. It is based on sections 587B to 587C of ICTA.
Clause 203: Certain disposals of investments
784. This clause sets out the requirements for relief. It is based on section 587B(1) and (2) of ICTA.
785. Subsection (3) prevents relief under section 105(2) of CTA 2009 where relief is given under this clause. Section 105 of CTA 2009 deals with gifts of “articles” manufactured, or of a class or description sold by, the donor in the course of the trade. It is considered that this may include certain shares or securities which fall within this clause.
Clause 204: Meaning of qualifying investment
786. This clause lists the types of investment that can attract relief. It is based on section 587B(9) to (9ZB) of ICTA.
Clause 205: Meaning of qualifying interest in land
787. This clause defines “qualifying interest in land” (one of the qualifying investments listed in clause 204). It is based on section 587B(9A) to (9E) of ICTA.
788. Subsections (2) and (3) clarify the position where a company with a beneficial interest in a freehold or leasehold interest in land in the United Kingdom gives that beneficial interest to a charity along with any easement, servitude or right that benefits the land. For example, company A’s land may only be accessible by way of an easement over B’s land. If company A gives the charity both the land and the right over B’s land, the disposal of the right will be treated as a separate disposal.
789. Under subsection (4), if a company with a freehold or leasehold interest carves out of that interest a lease for the benefit of the charity, the retention of the freehold or leasehold reversion will not prevent the disposal from being “of the whole beneficial interest”.
790. Under subsection (5), an agreement to acquire a freehold, or an agreement for a lease, is not a qualifying interest in land. So disposing of such an agreement would not constitute a disposal of a qualifying investment.
Clause 206: The relievable amount
791. This clause sets out how to calculate the relievable amount, first in cases where the qualifying investment is transferred to the charity by way of gift (subsection (1)), and then where there is some, but not full, consideration for the transfer (subsection (2)). It is based on section 587B(4) to (7) of ICTA.
792. In each case, the computation starts with the value of the net benefit to the charity (V), either directly (as in subsection (1)) or in arriving at E (the excess of V over the consideration for the disposal) in subsection (2).
793. The detail of how V is calculated is in clauses 209 to 212. But it is emphasised in the definition of V in subsection (1) that V must be considered both at, and immediately after, the time of disposal. If there is a difference between V at these two times, the lesser amount is taken.
794. Subsection (3) makes it explicit that if the amount given by either formula is negative the relievable amount is nil.
795. The treatment of incidental costs of disposal depends on whether the transfer is by way of gift or at an undervalue. If it is a gift, all the incidental costs are added in arriving at the relievable amount. But if there is consideration for the disposal, there is an interplay between the capital gains tax treatment and the incidental costs.
796. Under section 257(2)(a) of TCGA a gift of a qualifying investment to a charity is treated as being for such a consideration as will result in neither a loss nor a gain to the donor. Incidental costs are added only if that deemed consideration is greater than the actual consideration. But the amount added must not be greater than that excess. C is defined in subsection (4) to achieve this result.
Clause 207: Incidental costs of making disposal
797. This clause defines “the incidental costs of making the disposal to the company making it”. It is based on section 587B(9) of ICTA.
798. The clause reproduces the relevant material in section 38(2) of TCGA to which section 587B(9) of ICTA cross-refers, with the exception of the reference to stamp duty and stamp duty land tax, which do not apply to transactions within this Chapter.
Clause 208: Consideration
799. This clause makes provision about the calculation of the relievable amount in the case of disposal at an undervalue. It is based on section 587B(7) of ICTA.
800. The clause applies section 48 of TCGA (consideration due after time of disposal). The main thrust of section 48 of TCGA is that full value is to be introduced into the computation of the gain. Only on a subsequent claim is the consideration to be reduced, either because the right to receive any amount is contingent or because any part of the consideration proves to be irrecoverable.
Clause 209: Value of net benefit to charity
801. This clause is the first of four clauses concerned with defining the value of the net benefit to the charity. It is based on section 587B(8A) and (8B) and (9) of ICTA.
802. In the simple case, where there are no disposal-related obligations, the value of the net benefit to the charity is the market value of the qualifying investment. As indicated in clause 206, this has to be considered both at, and immediately after, the disposal.
803. If the charity is, or becomes, subject to an obligation that is related to the disposal of the qualifying investment to the charity, the market value of the investment is reduced by the amount of the disposal-related liabilities (see clause 212) under the obligation. These obligations must also be considered both at, and immediately after, the disposal.
Clause 210: Market value of qualifying investments
804. This clause sets out how the market value of qualifying investments is to be determined. It is based on section 587B(9) to (11) of ICTA.
805. The methods are those laid down in sections 272 to 274 of TCGA. If an offshore fund publishes buy and sell prices, an interest in it is in effect subject to the same treatment as a unit trust scheme as laid down by section 272(5) of TCGA. The provisions of that subsection are reproduced here.
Clause 211: Meaning of “disposal-related obligation”
806. This clause defines “disposal-related obligation”. It is based on section 587B(8B) to (8D) and (9) of ICTA.
Clause 212: Meaning and amount of “disposal-related liability”
807. This clause defines “disposal-related liability”. It is based on section 587B(8E) to (8G) and (9) of ICTA.
808. Subsection (2) deals with contingent disposal-related obligations.
809. It is in the nature of a contingency that it may occur after the time of disposal; hence the words “at any time”. If a contingency occurs later than immediately after the disposal, but existed as a possibility at the time of disposal, the value of the net benefit to the charity at the time of, or immediately after, the disposal must be reduced. All necessary adjustments must be made to give effect to this. Conversely, if the contingency does not occur, to that extent there will be no obligation and no liability.
Clause 213: Certificate required from charity
810. This clause, which is the first of four that deal specifically with qualifying interests in land, requires any claim for relief in relation to a qualifying interest in land to be supported by a certificate from the charity. It is based on section 587C(1), (4) and (5) of ICTA.
Clause 214: Qualifying interests in land held jointly
811. This clause deals with a disposal of land by all joint holders where at least one of the owners is a qualifying company. It is based on section 587BA(1) to (5) and (13) of ICTA.
Clause 215: Calculation of relievable amount etc where joint disposal of interest in land
812. This clause provides details for calculating the “relievable amount” in cases where there is a joint disposal of an interest in land. It is based on section 587BA(6) to (11) of ICTA.
813. If the joint owners include an individual subsection (3) directs the reader to Chapter 3 of Part 8 of ITA for the purposes of the relievable amount where that situation is catered for.
Clause 216: Disqualifying events
814. This clause provides for the recovery of relief if a “disqualifying event” occurs within the “provisional period”. It is based on section 587C(1) and (6) to (10) of ICTA.
815. In the simplest case, such an event occurs if any of the persons who made the disposal are entitled to buy the land back from the charity at an undervalue.
Clause 217: “Charity”
816. This clause defines “charity” for the purposes of the Chapter. It is based on section 587B(9) of ICTA.
Part 7: Community investment tax relief
Overview
817. This Part provides for community investment tax relief (CITR), that is corporation tax reductions for companies which invest in community development finance institutions (CDFIs). It is based on Schedule 16 to FA 2002.
818. Schedule 16 to FA 2002 as enacted also provided for CITR for individuals who invested in CDFIs, by way of reduction of income tax. Relief for individuals has been rewritten in Part 7 of ITA. This Part of this Bill largely mirrors Part 7 of ITA.
819. Schedule 1 to ITA has inserted sections 151BA, 151BB and 151BC in TCGA, replacing paragraphs 40 and 41 of Schedule 16 to FA 2002 and, so far as they apply for the purposes of capital gains tax or corporation tax on chargeable gains, paragraphs 47 and 48(2) of that Schedule. Those sections of TCGA accordingly apply in relation to CITR for both individuals and companies.
Chapter 1: Introduction
Overview
820. This Chapter quantifies the tax reduction potentially available to a company, labels certain concepts and provides signposts to material contained elsewhere.
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