Chapter 7: Trade profits: gifts to charities etc
Section 105: Gifts of trading stock to charities etc
407.This section sets out the main rule for gifts of trading stock. It is based on sections 83A and 84 of ICTA, which give relief for gifts to charities and educational establishments respectively. The corresponding rule for income tax is in section 108 of ITTOIA.
408.When a company disposes of trading stock other than in the course of a trade the general rule is that the market value of the stock is taken into account in calculating the profits of the trade (see Chapter 10 of this Part of this Act). This section sets out an exception to this general rule and applies if the company disposes of trading stock by way of gift to a charity etc.
409.There is a test for gifts to educational establishments in section 84(1)(a) of ICTA concerning the use to which the gift is put in the business of the educational establishment. There is no equivalent test in the rules for the relief for gifts to charities, in section 83A of ICTA. This section does not reproduce the condition in section 84(1)(a) of ICTA. See Change 26 in Annex 1.
410.Subsection (1) combines the ICTA reliefs for gifts to charities and gifts to educational establishments. It includes the extension of the relief to registered clubs in Part 3 of Schedule 18 to FA 2002. The relief covers gifts “for the purposes of” charities etc. See Change 27 in Annex 1.
411.The section does not require a claim by the company. In this respect, the section is different from section 84(3) of ICTA (but not from section 83A). See Change 28 in Annex 1.
412.Subsection (4) does not reproduce the references to the British Museum and the Natural History Museum. These bodies are charities within subsection (1)(a) of the section.
Section 106: Meaning of “designated educational establishment”
413.This section defines “designated educational establishment” for the purpose of section 105. It is based on section 84 of ICTA. The corresponding rule for income tax is in section 110 of ITTOIA.
414.Section 84(6) of ICTA provides that “the Board” shall refer any question as to whether a particular establishment is a designated educational establishment for the purposes of the section to the Secretary of State or the Department of Education for Northern Ireland. Section 832(1) of ICTA defines “the Board” as “the Commissioners of Inland Revenue” (to be taken as a reference to the Commissioners for Her Majesty’s Revenue and Customs, in accordance with section 50(1) of CRCA).
415.In practice, the function in section 84 of ICTA is exercised by an officer of Revenue and Customs. So subsection (3) of this section provides that any question as to whether a particular establishment is a designated educational establishment must be referred to the Secretary of State by “an officer of Revenue and Customs”. See Change 1 in Annex 1.
416.The National Assembly for Wales (Transfer of Functions) Order 1999 (SI 1999/672) devolves the functions of the Secretary of State under section 84 of ICTA to the Welsh Ministers. So this section refers to the Welsh Ministers (and the Assembly).
Section 107: Gifts of medical supplies and equipment
417.This section sets out the main rule for gifts of medical supplies and equipment. It is based on section 55 of FA 2002. It also gives a trading deduction for expenses connected with such gifts.
418.As in section 105, this section overrides the rule in Chapter 10 of this Part of this Act that the market value of a gift should be treated as a trade receipt.
419.Subsection (3) is the special rule that the costs of getting the medical supplies and equipment to the recipient are allowed as a deduction.
420.Subsection (5) is based on section 55(6) of FA 2002. The power of the Treasury to exclude certain medical supplies and equipment has not been used.
421.There is no corresponding rule for income tax. So section 55 of FA 2002 is repealed by Schedule 1 to this Act. See Change 29 in Annex 1.
Section 108: Receipt of benefits by donor or connected person
422.This section sets out what happens if a company receives a benefit in connection with a gift of trading stock or plant and machinery. It is based on sections 83A and 84 of ICTA and section 55 of FA 2002. The corresponding rule for income tax is in section 109 of ITTOIA.
423.Subsection (1) applies the section if a benefit is received by the company or a connected person. Section 82 of this Act (contributions to local enterprise organisations or urban regeneration companies) uses the same approach. The benefit must be in connection with a gift for which relief has been given under section 105, section 107 or the corresponding capital allowances rule.
424.Subsection (2) extends the recovery charge to a benefit attributable to the costs associated with making a gift of medical supplies and equipment.
425.If the donor is still carrying on the trade when the benefit is received the value of the benefit is treated as a trading receipt.
426.If the donor has ceased to carry on the trade when the benefit is received the value of the benefit is treated as a post-cessation receipt. This treatment replaces the general charge under Schedule D Case VI. See Change 19 in Annex 1.
