Charities and liability to income and corporation tax
Charities and liability to income and corporation tax

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Charities and liability to income and corporation tax
  • The exemption
  • The return

STOP PRESS: In accordance with its previous indications, the government has, in section 51 of the Finance Act 2016, legislated so that a tax charge is not applied to loans or advances made by close companies to charity trustees for charitable purposes. The measure applies to qualifying loans or advances that are made on or after 25 November 2015. This measure applies to loans from a charitable trust's (not charitable company's) subsidiary. It is customary for non-charitable subsidiaries of a charity to donate most or all of their profits to the parent charity. Where the subsidiary has a large sum of unused cash, it is common for it to lend the surplus to the parent charity until the actual profits that are available for donation has been confirmed. After FA 2013, a loan by a subsidiary to the trustees of the charitable trust would be liable to tax because the legislation did not distinguish between receipt of the loan by the trustees for their own benefit and receipt in as trustees with a fiduciary duty to apply the money for the purposes of the charity. This was recognised as inconsistent with the intention of the legislation to impose a tax charge where a benefit is conferred on an individual participator. See: Budget 2016—Lexis®PSL Private Client analysis—Close company loans to participators.