Corporation Tax Act 2010

Substantial donor transactions

502 Transactions with substantial donors

(1) For the purposes of this section and sections 504 to 506, “substantial donor transaction” means any of the following—

(a) the sale or letting of property by a charitable company to a substantial donor,

(b) the sale or letting of property to a charitable company by a substantial donor,

(c) the provision of services by a charitable company to a substantial donor,

(d) the provision of services to a charitable company by a substantial donor,

(e) an exchange of property between a charitable company and a substantial donor,

(f) the provision of financial assistance by a charitable company to a substantial donor,

(g) the provision of financial assistance to a charitable company by a substantial donor, and

(h) investment by a charitable company in the business of a substantial donor.

(2) For the purposes of this section and sections 504 to 506, a person is a substantial donor to a charitable company for an accounting period if—

(a) the charitable company receives relievable gifts of at least £25,000 from the person in a period of 12 months in which the accounting period wholly or partly falls, or

(b) the charitable company receives relievable gifts of at least £150,000 from the person in a period of 6 years in which the accounting period wholly or partly falls.

(3) If a person is a substantial donor to a charitable company for an accounting period as a result of subsection (2)(a) or (b), the person is a substantial donor to the charitable company for each of the following 5 accounting periods.

(4) A transaction entered into in an accounting period with a person who is a substantial donor for that period may be a substantial donor transaction, even if it was not until after the transaction was entered into that the person first satisfied the definition of “substantial donor” for the period.

503 Meaning of “relievable gift”

A gift is a “relievable gift” for the purposes of section 502(2) if relief is available in respect of it under—

(a) Part 6 (charitable donations relief),

(b) section 257 of TCGA 1992 (gifts of chargeable assets),

(c) section 63 of CAA 2001 (gifts of plant or machinery),

(d) sections 713 to 715 of ITEPA 2003 (payroll giving),

(e) section 108 of ITTOIA 2005 (gifts of trading stock),

(f) sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts),

(g) Chapter 2 or 3 of Part 8 of ITA 2007 (gift aid and gifts of shares, securities and real property), or

(h) section 105 of CTA 2009 (gifts of trading stock to charities etc).

504 Non-charitable expenditure in substantial donor transactions

(1) A payment made by a charitable company to a substantial donor in the course of, or for the purposes of, a substantial donor transaction is treated for the purposes of section 496 as non-charitable expenditure.

(2) If the terms of a substantial donor transaction are less beneficial to the charitable company than terms which might be expected in a transaction at arm’s length, the charitable company is treated for the purposes of section 496 as incurring non-charitable expenditure.

(3) The amount of the non-charitable expenditure that the charitable company is treated as incurring under subsection (2) is equal to the amount which an officer of Revenue and Customs determines as the cost to the charitable company of the difference in terms.

(4) A charitable company is treated as incurring non-charitable expenditure under subsection (2) at such time (or times) as an officer of Revenue and Customs may determine.

(5) A payment by a charitable company of remuneration to a substantial donor is treated for the purposes of section 496 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

(a) the Charity Commission,

(b) another body with responsibility for regulating charities by virtue of legislation having effect in respect of any part of the United Kingdom, or

(c) a court.

(6) If remuneration is paid otherwise than in money, subsection (5) applies as if it had been paid in money of an amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

505 Adjustment if section 504(1) and (2) applied to single transaction

(1) Either or both of subsections (1) and (2) of section 504 may be applied to a single transaction between a charitable company and a substantial donor.

(2) But if they are both applied, the amount of non-charitable expenditure that the charitable company would, apart from this subsection, be treated as incurring under section 504(2) in respect of the transaction, is reduced by the section 504(1) amount (but is not to be reduced below nil).

(3) The “section 504(1) amount” means the amount of any payment made by the charitable company, in the course of, or for the purposes of, the transaction, that is treated as non-charitable expenditure under section 504(1).

506 Section 504: certain payments and benefits to be ignored

(1) In the application of section 504, payments by a charitable company, or benefits arising to a substantial donor from a transaction, are to be ignored so far as—

(a) they relate to a donation by the donor, and

(b) either condition A or condition B is met.

(2) Condition A is that—

(a) the donation is made by an individual, and

(b) the payments or benefits do not prevent the donation being a qualifying donation for the purposes of Chapter 2 of Part 8 of ITA 2007 because of section 416(7)(b) of that Act (restrictions on associated benefits).

(3) Condition B is that—

(a) the donation is made by a company, and

(b) the payments or benefits do not prevent the donation being a qualifying donation for the purposes of Chapter 2 of Part 6 because of section 191(7) (restrictions on associated benefits).

507 Transactions: exceptions

(1) A transaction within section 502(1)(b) or (d) is not a substantial donor transaction if an officer of Revenue and Customs determines that the transaction—

(a) takes place in the course of a business carried on by the substantial donor,

(b) is on terms which are no less beneficial to the charitable company than those which might be expected in a transaction at arm’s length, and

(c) is not part of an arrangement for the avoidance of any tax.

(2) The provision of services to a substantial donor is not a substantial donor transaction if an officer of Revenue and Customs determines that those services are provided—

(a) in the course of carrying out a primary purpose of the charitable company, and

(b) on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

(3) The provision of financial assistance to a charitable company by a substantial donor is not a substantial donor transaction if an officer of Revenue and Customs determines that the assistance—

(a) is on terms which are no less beneficial to the charitable company than those which might be expected in a transaction at arm’s length, and

(b) is not part of an arrangement for the avoidance of any tax.

(4) Investment by a charitable company in the business of a substantial donor is not a substantial donor transaction if the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

(5) The following are not substantial donor transactions—

(a) a disposal at an undervalue in respect of which relief is available under section 203 of this Act or section 431 of ITA 2007 (gifts of shares, securities and real property), or

(b) a disposal at an undervalue to which section 257(2) of TCGA 1992 (gifts of chargeable assets) applies,

but such disposals may be taken into account in the application of section 502(2).

508 Donors: exceptions

(1) A company which is wholly owned by a charity within the meaning of section 200 is not a substantial donor in relation to a charitable company which owns it (or any part of it).

(2) Subsection (3) applies to any body which—

(a) is a non-profit registered provider of social housing (see sections 80 and 115 of the Housing and Regeneration Act 2008), or

(b) is registered under—

(i) section 1 of the Housing Act 1996,

(ii) section 57 of the Housing (Scotland) Act 2001 (asp 10), or

(iii) Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15)).

(3) The body is not a substantial donor in relation to a charitable company with which it is connected.

(4) For the purposes of subsection (3), a body and a charitable company are connected if (and only if)—

(a) one is wholly owned, or subject to control, by the other, or

(b) both are wholly owned, or subject to control, by the same person.

509 Connected charities

(1) A charitable company and any other charities with which it is connected are to be treated as a single charitable company for the purposes of sections 502 to 508.

(2) For this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

510 Substantial donor transactions: supplementary

(1) In sections 502 to 508—

(a) a reference to a substantial donor or other person includes a reference to a person connected with the donor or other person,

(b) “financial assistance” includes, in particular—

(i) the provision of a loan, guarantee or indemnity, and

(ii) entering into alternative finance arrangements within the meaning of section 564A(2) of ITA 2007 or section 501(2) of CTA 2009, and

(c) a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

(2) On an appeal against an assessment the tribunal may affirm or replace a decision of an officer of Revenue and Customs under section 504 or 507.

(3) The Treasury may by regulations vary a sum, or a period of time, specified in section 502(2).

(4) Section 1124 (meaning of “control”) does not apply for the purposes of section 508(4) or 509(2).