1460.This Chapter deals with exemptions other than gifts and payments dealt with in Chapter 2.
1461.This section sets out the exemption for trading profits of charitable companies. It is based on section 505(1) of ICTA. The corresponding rule for income tax is in section 524 of ITA.
1462.The exemption applies only if the trade is a charitable trade. This is defined in section 479.
1463.There is a difference between this section and the corresponding provision in ITA. Adjustment income (arising, for example, on a change of accounting basis) is an integral part of the trading profits of a company – see section 181 of CTA 2009. Charitable companies are entitled to the exemption on adjustment income on the same basis as their trading profits. The consequence is that, in contrast to ITA, there is no need for a change in the law to establish an exemption for adjustment income.
1464.This section does make it clear that, in the same way as the income tax legislation, post-cessation receipts (arising from what was a charitable trade) are exempt, in line with practice. Post-cessation receipt is defined by reference to Chapter 15 of Part 3 of CTA 2009. See Change 32 in Annex 1.
1465.Exemptions for small-scale trades are dealt with separately in section 480.
1466.This section defines “charitable trade” for the purposes of the Part. It is based on section 505(1) and (1B) of ICTA. The corresponding rule for income tax is in section 525 of ITA.
1467.The source legislation in section 505(1)(e) of ICTA refers to the trade being carried on “in the United Kingdom or elsewhere”, and section 505(1)(e)(i) refers to it being exercised in the “actual” carrying out of a primary purpose. The words in inverted commas are omitted as they add nothing.
1468.The section differs slightly from its income tax counterpart in section 525 of ITA. For income tax the conditions must be met throughout the basis period for the relevant tax year to reflect the fact that the two time periods are not usually the same, and it clearly makes sense to test the condition by reference to the period in which the activity was being carried on. This is not necessary for corporation tax as the accounting period is both the basis period and the chargeable period.
1469.Subsection (4), about making apportionments where different parts of a trade are treated as separate trades, makes specific mention of post-cessation receipts, but unlike the equivalent income tax provision there is no need for a specific apportionment for adjustment income. See Change 32in Annex 1 and the commentary on section 478.
1470.Any apportionments must be “just” as well as “reasonable”. Only the latter term appeared in the source legislation. See Change 33 in Annex 1.
1471.This section provides an exemption for trading income, related adjustment income and post-cessation receipts in circumstances where the amount of income to be exempted under this section and the next is small, and provided the income is applied to the purposes of the charitable company. It is based on section 46 of FA 2000. The corresponding rule for income tax is in section 526 of ITA.
1472.The exemption provided by this section applies only if the income is not otherwise exempt. So profits from primary purpose trading (including related adjustment income and post-cessation receipts) are exempt under section 478, whereas profits from a non-primary purpose trading activity (including related adjustment income and post-cessation receipts) may be exempt under this section.
1473.Change 32 is not necessary here as post-cessation receipts from a “small trade” are already exempt because of the exemption in section 46 FA 2000 for income chargeable under Schedule D Case VI.
1474.The condition about the limit on the level of income for this exemption to apply is in section 482. For Change 34 see commentary on section 482.
1475.This section provides an exemption for certain miscellaneous income and gains arising to a charitable company and applied to the purposes of the charitable company. It is based on section 46 of FA 2000. The corresponding rule for income tax is in section 527 of ITA.
1476.Section 834A of ICTA, which lists sources of income previously charged to tax under Schedule D Case VI, was inserted by paragraph 273 of Schedule 1 to CTA 2009. It is rewritten in this Act as section 1173. Now that the relief is by reference to the list in section 1173, some of the exclusions from the relief listed in the source legislation no longer need to be mentioned explicitly as they are not within the scope of section 1173. These are sections 703, 788 and 790 of ICTA, and paragraph 52(4) of Schedule 18 to FA 1998.
1477.Subsection (2) specifies the particular types of income and gains which cannot benefit from the exemption but which are within section 1173.
1478.The exemption provided by this section applies only if the income or gains are not otherwise exempt. So, for example, post-cessation primary purpose trading receipts are exempt under section 478 and post-cessation trading receipts from a non-primary purpose trading activity are exempt under section 480.
1479.The scope of this provision is therefore narrowed slightly in that post-cessation receipts from a primary purpose trade can now be exempt under section 478 whereas previously they could only be statutorily exempt under section 46 of FA 2000. (See Change 32 in Annex 1 and the commentary on section 478.)
1480.The condition about the level of the income and gains is in section 482. For Change 34 see commentary on section 482.
1481.This section sets out the condition about the limit on the level of trading and miscellaneous incoming resources that has to be met if the exemptions in sections 480 and 481 are to apply. It is based on section 46 of FA 2000. The corresponding rule for income tax is in section 528 of ITA.
1482.The condition operates by reference to the incoming resources associated with the trading activity and miscellaneous transactions whose profits are not exempt under the other exemptions in this Part. The expression “incoming resources” is used instead of “gross income” because this accounting term is a more direct and accessible way of capturing the meaning of the income labelled “gross income” in the source legislation. There are also related points of clarification. See Change 34 in Annex 1. This change also affects sections 480 and 481 (see following paragraph).
1483.Trading incoming resources and miscellaneous incoming resources are defined in subsections (2) and (4) respectively. The “requisite limit” is defined in subsection (6). The total incoming resources must not exceed the limit set out in subsection (6)(a), but subsection (6)(b) ensures that the limit is never less than £5000 or greater than £50,000. Accordingly if a charitable company’s trading and miscellaneous incoming resources relating to its non-exempt activities for an accounting period are, say, £4500 it would qualify for the exemption (provided that all other conditions are met) under section 480 or 481, even if that amount exceeds 25% of its total incoming resources for the accounting period.
1484.Similarly if the incoming resources related to its non-exempt activities exceed £50,000 in an accounting period, the charitable company cannot benefit from the exemptions in section 480 or 481, even if this figure does not breach the 25% limit in subsection (6)(a).
1485.This section gives statutory effect to ESC C4 as it applies to charitable companies and voluntary organisations provided the profits in question are applied to charitable purposes or transferred to a charity. It is new. The corresponding rule for income tax is in section 529 of ITA.
1486.The fund-raising event has to fall within the exemption from VAT under Group 12 of Schedule 9 to the Value Added Tax Act 1994. That Schedule provides an exemption from VAT for the supply by a charity of goods and services in connection with an event that is organised primarily to raise money for itself or other charities. The Schedule defines “event” and places certain limits on the number of events that a charity can hold in the same location in any given year.
1487.See Change 35 in Annex 1. This change also affects sections 490, 491 and 492.
1488.This section provides an exemption for lottery income provided the income is applied to the purposes of the charitable company. It is based on section 505(1) of ICTA. The corresponding rule for income tax is in section 530 of ITA.
1489.This section sets out the exemption from corporation tax for property income and certain trading income arising from land, provided the income is applied to charitable purposes. It is based on section 505(1) of ICTA. The corresponding rule for income tax is in section 531 of ITA.
1490.The exemption applies if the income is chargeable to tax under either Part 3 or Part 4 of CTA 2009. Subsection (1) deals with income chargeable under Part 3 of CTA 2009 and subsection (2) with income chargeable under Part 4 of CTA 2009.
1491.There is no requirement for the trade to be exercised in the course of carrying on a primary purpose of the charitable company. Instead, the exemption applies if the income derives from land vested for charitable purposes. But if some of the land is vested for charitable purposes and some vested or held for other purposes (for example, as an investment to generate income for non-charitable purposes) it is necessary to allocate the profits of the single property business between the two parts. This reflects the approach of the exemption in the source legislation that looks to particular interests in land, rather than to one overall property business.
1492.This makes the effect of the source legislation in section 505(1)(a) of ICTA explicit. There is no other income arising from land and chargeable to tax under Part 3 of CTA 2009 which is exempt under that provision.
1493.Subsection (3) provides an exemption from corporation tax for distributions from a United Kingdom REIT. The corresponding income tax exemption for this subsection is in section 531(2A) of ITA.
1494.The source legislation in section 505(1)(aa) of ICTA refers to exemption under Part 3 of CTA in respect of distributions to which section 121 of FA 2006 (rewritten in section 548) applies. Distributions to which section 121 of FA 2006 applies cannot be taxed as trading income and the reference to Part 3 of CTA has not therefore been rewritten.
1495.Section 505(1)(aa) of ICTA also refers to charging provisions in ITTOIA. These are not necessary for corporation tax and are not included in the rewritten legislation.
1496.The United Kingdom REIT rules are rewritten in Part 12 of this Act.
1497.This section sets out the various categories of savings and investment income that qualify for exemption from corporation tax, provided the income is applied to charitable purposes. It is based on section 505(1) of ICTA. The corresponding rule for income tax is in section 532 of ITA.
1498.Interest and related amounts are exempted by reference to the loan relationships regime, and the reference to a non-trading profit on a loan relationship also encompasses income from derivative contracts.
1499.The reference to an “Act” in subsection (1) is extended to include references to Northern Ireland legislation by section 1119, and to Acts of the Scottish Parliament. See Change 6 in Annex 1.
1500.Section 56(3)(c) of ICTA disapplies the charge to corporation tax on the disposal of rights to receive amounts under a certificate of deposit where profits or gains (other than trading profits) on the disposal arise to a charitable company and are applied for charitable purposes. But section 56(4A) provides that section 56 does not apply for corporation tax purposes except in relation to rights in existence before 1 April 1996. This is necessary because rights arising in or after April 1996 fall within the loan relationships legislation, now rewritten in Part 5 of CTA 2009. Section 56(3)(c) has been retained as a saving in Schedule 2 so that the disposal of pre-1996 rights are still exempt so far as they are applied to charitable purposes although subsequent rights fall within subsection (2)(a) of this section.
1501.This section provides an exemption for public revenue dividends used for the repair of certain places of worship. It is based on section 505(1) and (1A) of ICTA. The corresponding rule for income tax is in section 533 of ITA.
1502.This section provides an exemption from corporation tax for certain categories of miscellaneous income, provided the income is applied to charitable purposes. It is based on section 505(1) of ICTA. The corresponding rule for income tax is in section 536 of ITA.
1503.The reference to an “Act” in subsection (1) (b) is extended to include references to Northern Ireland legislation by section 1119, and to Acts of the Scottish Parliament. See Change 6 in Annex 1.
1504.Subsection (3)(c) deals with income from intangible fixed assets that does not fall within Part 8 of CTA 2009 because the assets involved are “pre-FA 2002 assets”. Previously the only exemption that covered this type of income was the exemption for annual payments. This section broadens the exemption to encompass income that is not covered by another exemption (for example, as a trading receipt) and is not exempted by this section as an annual payment, in the same way as for income tax in section 536 ITA. See Change 36 in Annex 1. This change also affects sections 490 and 491.
1505.Note that this extension to pre-FA 2002 assets only applies to what would be regarded as non-trading gains under Part 8 of CTA 2009. If the gains arise in respect of a pre-FA 2002 asset in the course of a non-charitable trade the exemption does not apply.
1506.This section provides an exemption for estate income received by a charitable company provided the income is applied to the purposes of the charitable company. It is new. The corresponding rule for income tax is in section 537.
1507.Estate income is income from property held by the personal representatives of the estate of a deceased person on behalf of the beneficiaries of the estate. The personal representatives are liable to income tax on the income. The exemption provided by this section allows a charitable company to recover any income tax suffered by the personal representatives. See Change 37in Annex 1.
1508.This section extends certain of the exemptions to the five specified bodies defined as “eligible bodies” in section 468. It is based on section 507 of ICTA.
1509.Section 507 of ICTA grants to these bodies the exemptions under section 505 that would fall to be allowed to a charitable company if the whole of the charitable company’s income is applied to charitable purposes.
1510.The exemptions are listed in subsection (3). The list includes exemption under section 483 and section 489. These are not part of the source legislation, which refers only to the exemptions under section 505 of ICTA, but they are brought into the purview of the exemptions for these bodies – see Changes 35and37 in Annex 1. The broadening of the exemptions under section 478 in respect of post-cessation receipts, and under section 488 in respect of intangible fixed assets also has an effect – see Changes 32and 36 in Annex 1.
1511.The list does not include the exemption under section 487 as the conditions for this exemption are structured in a different way.
1512.This section brings scientific research associations (SRAs) within most of the exemptions in this Part. It is based on section 508(1) of ICTA.
1513.Like the bodies named in section 490, SRAs are assumed to have met the test regarding the purpose of their expenditure. The relevant exemptions are listed in subsection (3). An SRA may itself be charitable and able to qualify under its own charitable status by meeting the necessary tests. Exemption under this section does not preclude that possibility, and equally a charitable SRA may still benefit from section 491.
1514.The broadening of the exemptions under section 478 in respect of post-cessation receipts, and under section 488 in respect of intangible fixed assets also has an effect – see Change 32and Change 36 in Annex 1. See also Changes 36 and 37 in Annex 1 in respect of the exemptions in subsection (3).
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