Finance Act 1986

Section 31.

SCHEDULE 7 Charities: Qualifying Expenditure, Investments and Loans

PART I Qualifying expenditure

1 (1) In the principal section "qualifying expenditure", in relation to a chargeable period of a charity, means, subject to sub-paragraph (3) below, expenditure incurred in that period for charitable purposes only.

(2) For the purposes of the principal section (and sub-paragraph (1) above), where expenditure which is not actually incurred in a particular chargeable period properly falls to be charged against the income, of that chargeable period as being referable to commitments (whether or not of a contractual nature) which the charity has entered into before or during that period, it shall be treated as incurred in that period.

(3) A payment made (or to be made) to a body situated outside the United Kingdom shall not be qualifying expenditure by virtue of this Part of this Schedule unless the charity concerned has taken such steps as may be reasonable in the circumstances to ensure that the payment will be applied for charitable purposes.

PART II Qualifying Investments

2 Investments specified in any of the following paragraphs of this Part of this Schedule are qualifying investments for the purposes of the principal section.

3 Any investment falling within Part I, Part II, apart from paragraph 13 (mortgages etc.), or Part III of Schedule I to the [1961 c. 62.] Trustee Investments Act 1961.

4 Any investment in a common investment fund established under section 22 of the [1960 c. 58.] Charities Act 1960 or section 25 of the [1964 c. 33 (N.I.).] Charities Act (Northern Ireland) 1964 or in any similar fund established for the exclusive benefit of charities by or under any enactment relating to any particular charities or class of charities.

5 Any interest in land, other than an interest held as security for a debt of any description.

6 Shares in, or securities of, a company which are quoted on a recognised stock exchange (within the meaning of section 535 of the Taxes Act), or which are dealt in on the Unlisted Securities Market.

7 (1) Units, or other shares of the investments subject to the trusts, of a unit trust scheme within the meaning of the Financial Services Act 1986.

(2) Until the passing of the Financial Services Act 1986, the reference in sub-paragraph (1) above to that Act shall have effect as a reference to the [1958 c. 45.] Prevention of Fraud (Investments) Act 1958.

8 (1) Deposits with a recognised bank or licensed institution (within the meaning of the [1979 c. 37.] Banking Act 1979) in respect of which interest is payable at a commercial rate.

(2) A deposit mentioned in sub-paragraph (1) above is not a qualifying investment if it is made as part of an arrangement under which a loan is made by the recognised bank or licensed institution to some other person.

9 Certificates of deposit as defined in section 55(3) of the [1968 c. 44.] Finance Act 1968.

10 (1) Any loan or other investment as to which the Board are satisfied, on a claim made to them in that behalf, that the loan or other investment is made for the benefit of the charity and not for the avoidance of tax (whether by the charity or any other person).

(2) The reference in sub-paragraph (1) above to a loan includes a loan which is secured by a mortgage or charge of any kind over land.

PART III Qualifying Loans

11 For the purposes of the principal section, a loan which is not made by way of investment is a qualifying loan if it consists of—

(a) a loan made to another charity for charitable purposes only; or

(b) a loan to a beneficiary of the charity which is made in the course of carrying out the purposes of the charity; or

(c) money placed on a current account with a recognised bank or licensed institution (within the meaning of the Banking Act 1979) otherwise than as part of such an arrangement as is mentioned in paragraph 8(2) above; or

(d) any other loan as to which the Board are satisfied, on a claim made to them in that behalf, that the loan is made for the benefit of the charity and not for the avoidance of tax (whether by the charity or any other person).

PART IV Attribution of Excess Non-Qualifying Expenditure to earlier Chargeable Periods

12 This part of this Schedule applies in the circumstances specified in subsection (6) of the principal section; and in this Part of this Schedule—

(a) "the primary period" means the chargeable period of the charity concerned in which there is such an excess as is mentioned in that subsection;

(b) "unapplied non-qualifying expenditure" means so much of the excess referred to in that subsection as does not exceed the non-qualifying expenditure of the primary period; and

(c) "earlier period", in relation to an amount of unapplied nonqualifying expenditure, means any chargeable period of the charity concerned which ended not more than six years before the end of the primary period.

13 (1) So much of the unapplied non-qualifying expenditure as is not shown by the charity to be the expenditure of non-taxable sums received by the charity in the primary period shall be treated in accordance with paragraph 14 below as non-qualifying expenditure of earlier periods.

(2) In sub-paragraph (1) above "non-taxable sums" means donations, legacies and other sums of a similar nature which, apart from any provision of the enactments conferring exemption from tax, are not within the charge to tax.

14 (1) Where, in accordance with paragraph 13 above, an amount of unapplied non-qualifying expenditure (in this paragraph referred to as "the excess expenditure") falls to be treated as non-qualifying expenditure of earlier periods.—

(a) it shall be attributed only to those earlier periods (if any) in which, apart from the attribution (but taking account of any previous operation of this paragraph) the relevant income and gains exceed the aggregate of the qualifying and non-qualifying expenditure incurred in that period; and

(b) the amount to be attributed to any such earlier period shall not be greater than the excess of that period referred to in paragraph (a) above.

(2) Where there is more than one earlier period to which the excess expenditure can be attributed in accordance with sub-paragraph (1) above, it shall be attributed to later periods in priority to earlier periods.

(3) In so far as any of the excess expenditure cannot be attributed to earlier periods in accordance with this paragraph, it shall be disregarded for the purposes of subsection (6) of the principal section (and this Part of this Schedule).

15 All such adjustments shall be made, whether by way of the making of assessments or otherwise, as are required in consequence of the provisions of this Part of this Schedule.