Annex 1: Minor changes in the law Change 39: Charitable companies: accounting period in which certain expenditure treated as incurred: section 499
This change makes it explicit that the time when expenditure is treated as incurred depends on UK GAAP.
Section 506(2) of ICTA provides that, for the purposes of section 505 of ICTA:
“where expenditure which is not actually incurred in a particular accounting period properly falls to be charged against the income of that accounting period as being referable to commitments (whether or not of a contractual nature) which the charitable company has entered into before or during that period, it shall be treated as incurred in that period.”
Section 506(2) of ICTA was first enacted in FA 1986 and advanced the time that certain expenditure is recognised, on the basis that charitable companies may have some flexibility in this regard. As a result of subsequent developments in accounting practice, the legislation now implicitly mirrors UK GAAP.
Section 499 is based on section 506(2) of ICTA, and makes the reference to UK GAAP explicit.
Section 499 is drafted in terms of the position if UK GAAP had applied, because there is no legal or other obligation requiring all charitable companies to prepare their accounts in accordance with UK GAAP. In particular “Accounting and Reporting for Charities: Statement of Recommended Practice (revised 2005)”, which imposes a requirement to account in accordance with UK GAAP on charitable companies (with certain exceptions), is not mandatory in Scotland and Northern Ireland. Neither does it apply to charitable companies which are able to prepare accounts on a “receipts and payments” basis rather than an “accruals” basis. This could, for example, apply to unincorporated associations whose turnover and assets do not exceed the statutory limits.
This approach ensures parity of treatment as between charitable companies operating in different parts of the United Kingdom or adopting different bases of accounting.
This change is in principle adverse to some taxpayers and favourable to others. But it is expected to have no practical effect as it is in line with generally accepted practice.