Restriction of exemptions
B5.850 Non-charitable expenditure
Tax relief is restricted where a charity incurs, or is deemed to incur (for example, under the rules for transactions with substantial donors; see B5.851) non-charitable expenditure. These rules apply for chargeable periods beginning after 21 March 20061.
Definition of non-charitable expenditure
Non-charitable expenditure is defined as2:
• expenditure not applied for charitable purposes only
• expenditure on non-qualifying investments
• expenditure on non-qualifying loans
• expenditure on transactions with substantial donors broadly before 1 April 2013 (see B5.851)
There are, however, special rules as regards payments overseas and loans and investments made by the charity.
Where a payment is made or committed to an overseas body, it will be treated as charitable expenditure if the charity take such steps as HMRC considers reasonable to ensure that the money will be properly applied by the body outside the UK3.
When considering whether the steps taken by the charity were reasonable in the circumstances, HMRC will have regard to:
• the charity's knowledge of the overseas body
• previous relations with the overseas body
• past history of the overseas body
• the amounts given in both absolute and relative terms, and
• the charity's observance of its own internal financial, management and decision making procedures, and whether or not these were adequate
Trustees are expected to make adequate enquiries to find out such information as is reasonably available about the overseas body, and establish what evidence will be provided or made available by that body to show
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