Section 35: Corporate Gift Aid for Community Amateur Sports Clubs
Summary
1.This section introduces a new tax relief for the donation of company profits to Community Amateur Sports Clubs (CASCs). In substance, the measure would put the tax treatment of donation of company profits to CASCs on a par with donation of company profits to charity, known as Corporate Gift Aid for charities. An anti-abuse rule is inserted in Part 6 of the Corporation Act 2010.
Details of the Section
General provisions
2.Subsection (1) introduces amendments to Part 6 (charitable donations relief) of the Corporation Taxes Act (CTA) 2010, the main provision covering gift aid tax relief of gifts of company profits to charities.
3.Subsection (2) amends section 189 (relief for qualifying charitable donations) to ensure relief for qualifying donations to CASCs is subject to the anti-abuse provisions in new Chapter 2A.
4.Subsection (3) amends section 192 (condition as to repayment), which applies where a subsidiary company makes a payment to its parent charity before the exact amount of its profits is known. Subsection (3) of section 1 ensures that a repayment by a CASC of any excess payment to its subsidiary to adjust the company’s taxable profits to nil will not be treated as non-qualifying expenditure. Non-qualifying expenditure of a CASC may be chargeable to tax under the provisions of section 666 (exemptions reduced if non-qualifying expenditure incurred) of CTA 2010.
5.Subsection (4) amends section 200 of CTA 2010, which sets out the conditions for a company to be regarded as wholly owned by a charity, by inserting new subsection (4A) which makes provision for CASCs with ordinary share capital.
6.Subsection (5) amends the meaning of ‘charity’ in section 202 for the purposes of Chapter 2, to include `registered clubs` as entities which qualify as charities. This enables the donation of money to CASCs by companies to rank as `qualifying payments` for company Gift Aid purposes.
7.Subsection (6) inserts new section 202A, which applies the definition of a `registered club` given by section 658(6) of CTA 2010 to Chapter 2 of Part 6. A ‘registered club’ is commonly known as a ‘CASC’.
Anti-abuse provisions
8.Subsection (7) inserts new Chapter 2A, which provides new anti-abuse provisions aimed at discouraging abuse of companies owned or controlled by CASCs.
9.New section 202B (1) (restriction on relief for payments to community amateur sports clubs) sets the conditions where the new anti-abuse provision would apply and introduces the concept of ‘inflated member-related expenditure’, which is defined at new section 202C.
10.Where a company, which is owned or controlled by a CASC, incurs inflated member-related expenditure, new section 202B (2) reduces (but not below nil) the amount of a qualifying payment by the company to its parent CASC that qualifies for tax relief. The amount of the reduction is the total amount of the inflated member-related expenditure or, if less, the amount of the qualifying payment. The effect of this provision is to bring back into the charge to corporation tax the amount of the inflated member-related expenditure.
11.New section 202B (3)-(7) deals with the situation where the amount of inflated member-related expenditure referred to in new section 202B (2) is greater than the qualifying payment made in the same accounting period. In that case any excess inflated member-related expenditure can be carried back to adjust qualifying payments in earlier years for up to six years. The excess expenditure is set off against qualifying payments made by the company starting from the latest year and working back.
12.The commencement provision at subsection (15) of section 1 prevents adjustments being made in accounting periods ending before the general commencement given by subsection (13).
13.New section 202B (8) to (11) provide a number of definitions for the purposes of new section 202B In particular new subsections (9) and (10) explains when a company is controlled by a club or two or more charities (including the club) for the purposes of the anti-abuse rule.
14.New section 202C (2) defines in paragraphs (a) and (b) the two situations in which expenditure incurred by a company is `inflated member-related expenditure`.
15.The situation in paragraph (a) is that expenditure on the employment of a member of the club by the company is not at arm’s length. New section 202C (7) enables HM Treasury to provide, by Order, what counts as ‘employment-related’ expenditure for this purpose.
16.The situation in paragraph (b) is that expenditure on the supply of goods and services to the club by a member or member-controlled body is not on an arm’s length basis.
17.New section 202C(3) provides that where the expenditure, taken as a whole, is beneficial to the company rather than to the third party then that expenditure will not fall within the definition of ‘inflated member-related expenditure’.
18.New section 202C (4) and (5) explain the meaning of `member-controlled` for the purpose of section 202C (2).
19.New section 202C (6) provides that a reference to a member of the club includes a reference to a person connected to a member.
Donations from companies to CASCs
20.Subsection (8) introduces amendments to Chapter 9 of Part 13 (community amateur sports clubs) to include donations from companies within the tax relief provisions for CASCs.
21.Subsections (9) and (10) set the tax treatment of gifts of money to CASCs by companies. Subsection (9) inserts new section 661E, which brings gifts of money by companies into the charge to corporation tax. Subsection (10) amends section 664 (exemption for interest and gift aid income) to relieve a gift of money by a company, referred to as ‘company gift income’, from the charge to corporation tax so long as the payment is used for qualifying purposes.
22.Subsections (11) and (12) make consequential amendments to reflect the changes brought about by this section.
23.Subsection (13) provides that the amendments made in this section have effect in relation to payments made on or after 1 April 2014.
24.Subsection (14) provides that the amendments enabling corporate gift aid for CASCs are to be ignored for the purposes of section 199 (payment attributed to earlier period) where the company makes a claim for the payment to be treated as a qualifying payment for an earlier accounting period ending before 1 April 2014. This prevents a company attributing a qualifying payment made under the new provisions to an accounting period ending before 1 April 2014.
25.Subsection (15) provides that the restriction on relief for payments to CASCs in earlier accounting periods under new section 202B (3) (where there is ‘inflated member-related expenditure’) does not apply in respect of accounting periods ending before 1 April 2014.
Background Note
26.This section extends the scope of tax relief available to companies that give money to CASCs allowing them to foster greater involvement in community sporting activity.
27.The section includes anti-abuse provisions to deter CASC members from obtaining a financial advantage from a company owned by a CASC. The anti-abuse provisions hinge on the new concept of `inflated member-related expenditure`. The following examples show how this concept operates.
Example 1:
28.A company, owned and controlled by a CASC buys supplies from one CASC member and rents property from another. Both of the payments are more than what would be expected under an arm’s length arrangement. As a result CASC members benefit financially to the detriment of the company and its parent sports club.
29.In the Accounting Period Ended (APE) 31.01.16, the subsidiary incurred total costs of £37,500 and £12,500 for the supply of sporting equipment and rent, respectively.
30.In respect of the same APE the subsidiary made a qualifying gift of its entire net profit of £75,000 to the CASC.
31.Because neither of the arrangements was at arm’s length the value of the qualifying gift would be reduced by £50,000 (37,500 + £12,500).
32.Accordingly, the subsidiary would become liable to pay corporation tax in respect of an APE 31.01.16 profit of £50,000, rather than nil, despite the company donating its entire net profit to the CASC.
Example 2:
33.A contract agreed between a CASC controlled company and a CASC member provides for two supplies for a total figure of £100,000. An arm’s length transaction would have cost £25,000 for each supply. It is impossible to know how the £100,000 is allocated to each supply in this case, therefore the whole of the £100,000 will be treated as Inflated Member Related Expenditure.
