Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 1 — Introduction
236

469
Conditions for qualifying as a scientific research association
(1)
For the purposes of this Part a body qualifies as a scientific research association
for an accounting period if—
(a)
it is an association (see subsection (5)(a)), and
(b)
it meets conditions A and B with respect to the accounting period.
5
(2)
Condition A is that the body has as its object the undertaking of research and
development which may lead to or facilitate an extension of any class or classes
of trade.
(3)
Condition B is that the memorandum of association or other similar instrument
regulating the body’s functions precludes the direct or indirect payment or
10
transfer to any of its members of any of its income or property by way of
dividend, gift, division, bonus or otherwise by way of profit.
(4)
For the purposes of compliance with condition B it is not necessary that the
memorandum of association or other similar instrument regulating the body’s
functions should prevent the payment to its members of—
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(a)
reasonable remuneration for goods, labour or power supplied, or for
services provided,
(b)
reasonable interest for money lent, or
(c)
reasonable rent for premises.
(5)
The Treasury may by regulations—
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(a)
make provision specifying what is to be treated as being, or as not
being, an association for the purposes of subsection (1)(a), or
(b)
prescribe circumstances in which a body is to be treated as not meeting
condition A or B with respect to an accounting period.
(6)
The Treasury may by regulations make provision specifying for the purposes
25
of condition A—
(a)
circumstances in which a body is to be treated as having, or as not
having, the undertaking of research and development as its object,
(b)
circumstances in which the undertaking of research and development
is to be treated as being, or as not being, capable of leading to or
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facilitating an extension of a class of trade, or
(c)
what is to be treated as being, or as not being, a class of trade.
470
Meaning of “research and development” in section 469
(1)
Section 1138 (meaning of “research and development”) applies for the
purposes of section 469(2).
35
(2)
Regulations under section 1006(3) of ITA 2007 (power to prescribe activities
which are, or are not, research and development), as that section applies by
virtue of section 1138(3), may make provision for the purposes of section 469(2)
which is additional to, or different from, the provision made for other purposes
under section 1006(3).
40

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 2 — Gifts and other payments
237

Chapter 2
Gifts and other payments
Gifts and other payments to charitable companies
471
Gifts qualifying for gift aid relief: income tax treated as paid
(1)
This section applies if a gift is made to a charitable company by an individual
5
and the gift is a qualifying donation for the purposes of Chapter 2 of Part 8 of
ITA 2007 (gift aid).
(2)
The charitable company is treated as receiving, under deduction of income tax
at the basic rate for the tax year in which the gift is made, a gift of an amount
equal to the grossed up amount of the gift.
10
(3)
References in this section to the grossed up amount of the gift are to the amount
of the gift grossed up by reference to the basic rate for the tax year in which the
gift is made.
(4)
The income tax treated as deducted is treated as income tax paid by the
charitable company.
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472
Gifts qualifying for gift aid relief: corporation tax liability and exemption
(1)
If a charitable company receives a gift from an individual and the gift is a
qualifying donation for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift
aid), the grossed up amount of the gift is treated as an amount in respect of
which the company is chargeable to corporation tax, under the charge to
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corporation tax on income.
(2)
But the grossed up amount of the gift is not taken into account in calculating
total profits so far as that grossed up amount is applied to charitable purposes
only.
(3)
References in this section to the grossed up amount of a gift are to the amount
25
of the gift grossed up by reference to the basic rate for the tax year in which the
gift is made.
(4)
The exemption under subsection (2) requires a claim.
(5)
A charitable company is treated as having made a claim for any exemption to
which it may be entitled under subsection (2) if—
30
(a)
it receives a gift as a result of a direction under section 429(2) of ITA
2007 (giving through self-assessment return), and
(b)
as a result of section 429(4) of that Act, the gift is treated as a qualifying
donation for the purposes of Chapter 2 of Part 8 of that Act.
473
Gifts of money from companies: corporation tax liability and exemption
35
(1)
If a charitable company receives a gift of a sum of money from a company
which is not a charity, the gift is treated as an amount in respect of which the
charitable company is chargeable to corporation tax, under the charge to
corporation tax on income.

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 2 — Gifts and other payments
238

(2)
But the gift is not taken into account in calculating total profits so far as it is
applied to charitable purposes only.
(3)
The exemption under subsection (2) requires a claim.
474
Payments from other charities: corporation tax liability and exemption
(1)
Subsection (2) applies if a charitable company receives from another charity a
5
payment which—
(a)
is not made for full consideration in money or money’s worth,
(b)
is not chargeable to corporation tax apart from this section, and
(c)
is not of a description which (on a claim) would be exempt from
corporation tax under any of the exemptions conferred by this Part.
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(2)
The payment is treated as an amount in respect of which the charitable
company is chargeable to corporation tax, under the charge to corporation tax
on income.
(3)
But the payment is not taken into account in calculating total profits so far as it
is applied to charitable purposes only.
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(4)
In the case of a payment to which section 494 of ITA 2007 (discretionary
payments by trustees) applies, the references in subsections (2) and (3) to the
payment are to be read as references to the grossed up amount of the
discretionary payment within the meaning of that section.
(5)
The exemption under subsection (3) requires a claim.
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Gifts to eligible bodies
475
Gifts qualifying for gift aid relief: income tax treated as paid and exemption
(1)
This section applies if a gift is made to an eligible body by an individual and
the gift is a qualifying donation for the purposes of Chapter 2 of Part 8 of ITA
2007 (gift aid).
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(2)
The eligible body is treated as receiving, under deduction of income tax at the
basic rate for the tax year in which the gift is made, a gift of an amount equal
to the grossed up amount of the gift.
(3)
References in this section to the grossed up amount of the gift are to the amount
of the gift grossed up by reference to the basic rate for the tax year in which the
30
gift is made.
(4)
The income tax treated as deducted is treated as income tax paid by the eligible
body.
(5)
The grossed up amount of the gift is not taken into account in calculating total
profits.
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(6)
The exemption under subsection (5) requires a claim.
(7)
An eligible body is treated as having made a claim for any exemption to which
it may be entitled under subsection (5) if—
(a)
it receives a gift as a result of a direction under section 429(2) of ITA
2007 (giving through self-assessment return), and
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Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 3 — Other exemptions
239

(b)
as a result of section 429(4) of that Act, the gift is treated as a qualifying
donation for the purposes of Chapter 2 of Part 8 of that Act.
(8)
In the case of an eligible body which is a charitable company, this section
applies instead of sections 471 and 472.
476
Gifts of money from companies: exemption
5
(1)
If an eligible body receives a gift of a sum of money from a company, the gift
is not taken into account in calculating total profits.
(2)
The exemption under subsection (1) requires a claim.
(3)
In the case of an eligible body which is a charitable company, this section
applies instead of section 473.
10
Gifts to scientific research associations
477
Gifts of money from companies: exemption
(1)
A gift of a sum of money that a body receives from a company is not taken into
account in calculating total profits if the body receiving the gift qualifies as a
scientific research association for the relevant accounting period.
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(2)
The exemption under subsection (1) requires a claim.
(3)
In subsection (1) “the relevant accounting period” means the accounting period
for which the exemption is to be claimed.
(4)
In the case of a body which qualifies as a scientific research association and is
also a charitable company, this section applies instead of section 473.
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Chapter 3
Other exemptions
Exemptions
478
Exemption for profits etc of charitable trades
(1)
The income mentioned in subsection (2) is not taken into account in calculating
25
total profits if the condition in subsection (3) is met.
(2)
The income referred to in subsection (1) is—
(a)
profits of a charitable trade carried on by a charitable company, and
(b)
post-cessation receipts arising from a charitable trade carried on by a
charitable company which are received by the company or to which it
30
is entitled.
(3)
The condition is that the profits are, or (as the case may be) the post-cessation
receipt is, applied to the purposes of the charitable company only.
(4)
In this section “post-cessation receipt” means an amount that is a post-
cessation receipt for the purposes of Part 3 of CTA 2009 (see sections 190 to 195
35
of that Act).

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 3 — Other exemptions
240

(5)
The exemption under subsection (1) requires a claim.
479
Meaning of “charitable trade”
(1)
For the purposes of this Part a trade carried on by a charitable company is a
charitable trade if—
(a)
the trade is exercised in the course of carrying out a primary purpose of
5
the charitable company, or
(b)
the work in connection with the trade is mainly carried out by
beneficiaries of the charitable company.
(2)
For the purposes of subsection (1)(a), if a trade is exercised partly in the course
of carrying out a primary purpose of the charitable company and partly
10
otherwise, each part is to be treated as a separate trade.
(3)
For the purposes of subsection (1)(b), if work in connection with a trade is
carried out partly but not mainly by beneficiaries, the part in connection with
which work is carried out by beneficiaries and the other part are to be treated
as separate trades.
15
(4)
If different parts of a trade are treated as separate trades under subsection (2)
or (3), a just and reasonable apportionment is to be made for that purpose of—
(a)
expenses and receipts of the trade, and
(b)
any amounts which are post-cessation receipts arising from the trade
for the purposes of Part 3 of CTA 2009.
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480
Exemption for profits of small-scale trades
(1)
The income mentioned in subsection (2) is not taken into account in calculating
total profits if conditions A and B are met.
(2)
The income referred to in subsection (1) is—
(a)
the profits of a trade carried on by a charitable company, and
25
(b)
post-cessation receipts arising from a trade carried on by a charitable
company which are received by the company or to which it is entitled.
(3)
Subsection (1) does not apply in respect of—
(a)
profits of a trade that are, apart from this section, exempt from
corporation tax chargeable under Part 3 of CTA 2009, or
30
(b)
post-cessation receipts that are, apart from this section, exempt from
corporation tax chargeable under Chapter 15 of Part 3 of CTA 2009.
(4)
Condition A is—
(a)
in the case of the profits of a trade, that the profits are profits of an
accounting period in relation to which the condition specified in section
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482 (condition as to trading and miscellaneous incoming resources) is
met, and
(b)
in the case of a post-cessation receipt, that it is received in such an
accounting period.
(5)
Condition B is that the profits are, or (as the case may be) the receipt is, applied
40
to the purposes of the charitable company only.
(6)
The exemption under subsection (1) requires a claim.

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 3 — Other exemptions
241

(7)
In this section “post-cessation receipt” means an amount that is a post-
cessation receipt for the purposes of Part 3 of CTA 2009 (see sections 190 to 195
of that Act).
481
Exemption from charges under provisions to which section 1173 applies
(1)
Any income or gains of a charitable company that is or are chargeable to
5
corporation tax under or by virtue of any provision to which section 1173
applies is not or are not taken into account in calculating total profits if
conditions A and B are met.
(2)
Subsection (1) does not apply in respect of any income or gains that is or are
chargeable to corporation tax by virtue of any of—
10
(a)
section 818(1) (gains from transactions in land),
(b)
section 1086(2) (chargeable payments connected with exempt
distributions), and
(c)
any other enactment specified in an order made by the Treasury.
(3)
Subsection (1) does not apply in respect of any income that is, or gains that are,
15
apart from this section, exempt from corporation tax chargeable under or by
virtue of any provision to which section 1173 applies.
(4)
Condition A is that the income is, or the gains are, for an accounting period in
relation to which the condition specified in section 482 (condition as to trading
and miscellaneous incoming resources) is met.
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(5)
Condition B is that the income is, or the gains are, applied to the purposes of
the charitable company only.
(6)
The exemption under subsection (1) requires a claim.
482
Condition as to trading and miscellaneous incoming resources
(1)
The condition in this section is met in relation to an accounting period if—
25
(a)
the sum of the charitable company’s trading incoming resources and
miscellaneous incoming resources for the accounting period does not
exceed the requisite limit for the period, or
(b)
the charitable company had, at the beginning of the period, a
reasonable expectation that it would not do so.
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(2)
The charitable company’s “trading incoming resources” for the accounting
period are—
(a)
the incoming resources which are required to be taken into account in
calculating the profits of, or losses made in, the period for any non-
exempt trade carried on by the company, and
35
(b)
the incoming resources which are post-cessation receipts arising from
such a trade.

“Post-cessation receipt” has the meaning given by section 480(7).
(3)
For the purposes of subsection (2) a trade is a “non-exempt trade” if any profits
of the trade would not, apart from section 480, be exempt from corporation tax
40
chargeable under Part 3 of CTA 2009.
(4)
The charitable company’s “miscellaneous incoming resources” for the
accounting period are the incoming resources which are required to be taken

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 3 — Other exemptions
242

into account in calculating non-exempt miscellaneous income or non-exempt
miscellaneous losses for the period.
(5)
In subsection (4)—
“non-exempt miscellaneous income” means income or gains chargeable to
corporation tax under or by virtue of any provision to which section
5
1173 applies that is not, or are not, apart from section 480 or 481, exempt
from corporation tax chargeable under or by virtue of that provision,
and
“non-exempt miscellaneous losses” means losses arising from a
transaction which is of such a nature that if income or gains had arisen
10
from it the income would have been non-exempt miscellaneous
income.
(6)
The requisite limit—
(a)
is 25% of the charitable company’s total incoming resources for the
accounting period, but
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(b)
must not be less than £5,000 or more than £50,000.
(7)
If the accounting period is shorter than 12 months, the amounts of £5,000 and
£50,000 mentioned in subsection (6)(b) are proportionately reduced.
483
Exemption for profits from fund-raising events
(1)
The profits of a trade carried on by a charitable company are not taken into
20
account in calculating total profits so far as they—
(a)
arise from an event that is VAT-exempt in relation to the company, and
(b)
are applied to charitable purposes or transferred to a charity.
(2)
The profits of a trade carried on by a body to which subsection (3) applies are
not taken into account in calculating total profits so far as they—
25
(a)
arise from an event that is VAT-exempt in relation to the body, and
(b)
are applied to charitable purposes or transferred to a charity.
(3)
This subsection applies to any voluntary organisation that is a qualifying body
for the purposes of Group 12 of Schedule 9 to the Value Added Tax Act 1994
(fund-raising events by charities and other qualifying bodies).
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(4)
The exemptions under this section require a claim.
(5)
For the purposes of this section an event is VAT-exempt in relation to a person
if the supply of goods and services by that person in connection with the event
would be exempt from value added tax under Group 12 of Schedule 9 to the
Value Added Tax Act 1994.
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484
Exemption for profits from lotteries
(1)
The profits accruing to a charitable company from a lottery are not taken into
account in calculating total profits if conditions A and B are met.
(2)
Condition A is that—
(a)
the lottery is an exempt lottery within the meaning of the Gambling Act
40
2005 by virtue of Part 1 or 4 of Schedule 11 to that Act,
(b)
the lottery is promoted in accordance with a lottery operating licence
within the meaning of Part 5 of the Gambling Act 2005, or