Section 51 Schedule 15: Relief for Gift Aid and Other Income of Charities Etc
Summary
1.Section 51 and Schedule 15 make a number of amendments to the law to put onto a statutory footing the current practice of HM Revenue & Customs (HMRC) of making repayments of income tax, including under Gift Aid, to Community Amateur Sports Clubs (CASCs) charitable trusts, charitable companies and eligible bodies.
Details of the Section
2.Section 51 introduces Schedule 15 which contains provisions relating to CASCs, eligible bodies and charities that make Gift Aid repayment claims and other income tax repayment claims.
Details of the Schedule
3.Schedule 15 amends the rules for charitable trusts and companies, CASCs and eligible bodies as defined in section 468 of Corporation Tax Act (CTA) 2010. It allows charities, CASCs and eligible bodies to make claims for repayments of Gift Aid and other income tax outside a tax return. Currently:
charitable trusts that have been issued with a notice to file a tax return can claim a repayment of income tax, including Gift Aid relief, only on the tax return (section 42(2) of the Taxes Management Act 1970 (TMA));
if a charitable trust receives a payment on which income tax has been deducted or is deemed to have been deducted, the income tax must be set off against income tax due before it is repaid (section 59B TMA)
charitable companies, which are subject to corporation tax, can claim a repayment of income tax including Gift Aid relief only after the delivery of a company tax return for the period to which the claim relates (paragraphs 9(1) and (2) of Schedule 18 to the Finance Act (FA) 1998). Eligible bodies as defined in section 468 CTA 2010 are companies for tax purposes and are subject to the same restriction.
if a charitable company receives a payment on which income tax has been deducted or is deemed to have been deducted, the income tax must be set off against corporation tax due before it is repaid (section 967 CTA 2010). The same restriction applies to eligible bodies.
CASCs are treated as companies for tax purposes but the Gift Aid legislation in Part 11 of CTA 2010 does not apply to CASCs, so there is no provision to allow CASCs to claim Gift Aid repayments. The Gift Aid legislation used to apply to CASCs (so far as it treated qualifying donations to be received under deduction of tax) but the link was broken when the legislation rewritten for the CTA 2010.
4.Paragraph 1 amends section 538A of ITA 2007 by inserting a new subsection (A1). Section 538A ITA 2007 enables charitable trusts to claim exemption from income tax on Gift Aid, in what is known as a “free-standing claim.” A free-standing claim may be made during the tax year in which the income is received. Section 538A currently applies only to free-standing claims for exemption from tax, not for repayment, and it refers only to Gift Aid. New subsection (A1) allows charitable trusts to make free-standing claims for repayment of income tax where they receive a gift that qualifies for Gift Aid relief or other specified income that has suffered a tax deduction. Section 538A is also amended to allow free-standing claims for exemption from tax for the other income specified in new subsection (A1).
5.Paragraph 2 introduces amendments to Part 11 of CTA 2010, which applies to charitable companies and eligible bodies.
6.Paragraph 3 amends section 477A of CTA 2010 by inserting a new subsection (A1). Section 477A CTA 2010 enables charitable companies and eligible bodies to claim exemption from income tax on Gift Aid, in what is known as a “free-standing claim.” A free-standing claim may be made at any time during the tax year in which the income is received. Section 477A currently applies only to free-standing claims for exemption from tax, not for repayment. New subsection (A1) allows charitable companies and eligible bodies to make free-standing claims for repayment of income tax where they receive a gift that qualifies for Gift Aid relief.
7.Paragraph 4 inserts a new section 491A in CTA 2010. This section applies the provisions of section 477A to other specified income that has suffered an income tax deduction that is received by charitable companies and eligible bodies. This sets out how charitable companies and eligible bodies can make free-standing claims for this income to be exempt from tax and for repayments of tax.
8.Paragraph 5 introduces amendments to Chapter 9 Part 13 of CTA 2010, which applies to CASCs.
9.Paragraph 6 inserts new section 661D into CTA 2010 which extends the Gift Aid legislation to CASCs. New section 661D CTA 2010 treats qualifying donations to CASCs falling within the Gift Aid provisions of Chapter 2 of Part 8 of Income Tax Act (ITA) 2007 as being received under deduction of income tax, by reference to the current basic rate of tax. The income tax treated as deducted is treated as income tax paid by the club, and the grossed up amount of the donation, is charged to corporation tax. The donation is exempt from corporation tax under section 664 CTA 2010 provided it is used for qualifying purposes.
10.Paragraph 7 inserts new section 665A into CTA 2010. This allows CASCs to claim a repayment, either of income tax treated as deducted by new section 661D CTA 2010 in respect of Gift Aid donations, or of income tax deducted at source from interest income. The repayment can be claimed either by a “free-standing claim” or by a claim included in the CASC’s tax return. The provision also enables the Commissioners of HMRC to make regulations limiting the number of free-standing claims that may be made within a tax year and specifying the minimum amount that may be claimed in a free-standing claim.
11.Paragraph 8 inserts new subsection 413(6) into ITA 2007 to refer to the legislation on gift aid for CASCs in Chapter 9 Part 13 of CTA 2010.
12.Paragraph 9 amends section 59B TMA which provides that where a charitable trust receives a payment on which it bears income tax by deduction, the income tax must be set off against any income tax due. The amendment to this section exempts donations received by charitable trusts which qualify for Gift Aid and other specified income on which income tax has been deducted from the provisions of this section. This means that income tax claimed under Gift Aid or which has been deducted from other specified income may be repaid during the tax year instead of waiting until the end of the tax year to establish if there is income tax liability against which the income tax deducted should be offset.
13.Paragraph 10 inserts new subsection (5) into section 967 of CTA 2010. Section 967 provides that where a UK resident company receives a payment on which it bears income tax by deduction, the income tax suffered must be set against any corporation tax due. New subsection (5) of section 967 CTA 2010 exempts donations received by charitable companies, eligible bodies and CASCs in respect of Gift Aid and certain other specified income from the provisions of this section. This means that income tax claimed under Gift Aid or which has been deducted from other specified income may be repaid during the tax year instead of waiting until the end of the tax year to establish if there is corporation tax liability against which the income tax should be offset.
14.Paragraph 11 disapplies (in respect of certain sources of income) the requirement in section 42(2) of TMA that, where HMRC has already issued a notice to charitable trustees to make a tax return for the year, and the trustees are to make a claim, that claim must be included in a tax return. New subsection 42(3ZA) TMA provides an expanded list of sources of income in respect of which this requirement does not apply, which includes Gift Aid income. The result is that such claims for tax exemption can be made outside the return. New subsection (3ZB) excludes from the provisions of section 42(2) claims for repayment of income tax in respect of the income listed in subsection (3ZA) so that claims for tax repayment in respect of this income can be made outside the return.
15.Paragraph 12 makes a consequential amendment in paragraph 11 Schedule 8 to FA 2010.
16.Paragraph 13 introduces amendments to Schedule 18 to FA 1998 which applies to charitable companies, eligible bodies and CASCs.
17.Paragraph 14 substitutes a new sub-paragraph (2A) and adds a new sub-paragraph (2B) in paragraph 9 of Schedule 18 to FA 1998. Paragraph 9 prevents a company from making a claim before it makes a return for the period to which the claim relates. The amendments exempt from that provision claims for a repayment of tax under Gift Aid and in respect of other specified income by charitable companies, eligible bodies and CASCs. This ensures that a company may claim a repayment of income tax under Gift Aid, and on other specified income, before it has submitted its tax return and applies to claims by charitable companies, eligible bodies and CASCs.
18.Paragraph 15 amends paragraph 57 of Schedule 18 to FA 1998 by substituting sub-paragraph (1A) with a new sub-paragraphs (1A), (1B) and (1C). Paragraph 57 requires that, if a company has been given a notice requiring it to deliver a return for a particular period, a claim that could be made in the return for that period must be made in the return. The amendment exempts from this requirement claims by charitable companies, eligible bodies and CASCs for a repayment of tax under Gift Aid, and in respect of other specified income, and for exemption from corporation tax in respect of Gift Aid and other specified income .
19.Paragraph 16 makes a consequential amendment in Schedule 8 to FA 2010.
20.Paragraph 17 sets out the commencement dates for the provisions as follows:
Paragraphs 1 to 4 and 7 take effect from 8 April 2010, the date that Royal Assent was given to FA 2010.
Paragraphs 6, 8 and 10 take effect in relation to the same accounting periods as CTA 2010.
Paragraph 9 takes effect in relation to income or donations qualifying for Gift Aid received on or after 6 April 2006. References in the amendment to ITA 2007 are to be read as including a reference to any corresponding earlier enactment that was rewritten in ITA.
An amendment corresponding to that in paragraph 10(2) is taken as having been made to any earlier enactment that was rewritten in CTA 2010. The corresponding amendment is taken as having effect in Income and Corporation Taxes Act (ICTA) 1988 from 6 April 2000, the date on which Gift Aid in its current form was introduced, or 6 April 2002 for CASCs, the date on which the CASC scheme began.
An amendment corresponding to that in Paragraph 10(3) is taken as having been made to any earlier enactment that was rewritten in CTA 2010. The corresponding amendment is taken as having effect in ICTA 1988 from 6 April 2006.
Paragraphs 11 to 16 have effect in relation to claims whenever made, ensuring that the machinery for making free-standing claims works with retrospective effect.
Background Note
21.HMRC has allowed charitable trusts and charitable companies and eligible bodies to submit income tax repayment claims in advance of filing a tax return (“in-year claims”) under their powers of collection and management, although in law some trusts and all companies are allowed to make a claim only in a tax return. This applies to claims for repayment of income tax on income such as bank interest and royalties. It also applies in relation to repayments of income tax under Gift Aid but these in-year repayments were put on a statutory footing by paragraphs 4 to 7 of Schedule 8 to FA 2010. However, those changes to the Gift Aid legislation do not work as intended, so Schedule 15 amends the legislation to allow charities to make free-standing claims for Gift Aid and other income tax repayments.
22.HMRC allows registered CASCs to claim Gift Aid repayments on donations made to them provided that the donations are used for qualifying purposes. It is the intention that they should be able to claim Gift Aid in the same way as charitable companies. Owing to an error that occurred when legislation was re-written for Corporation Tax Act 2010, CASCs are not treated in the same way as charitable companies for the purpose of the Gift Aid legislation. Schedule 15 amends the legislation to allow CASCs to claim Gift Aid repayments and to put HMRC current practice on to a statutory footing.
