Commentary on Sections Section 5: Meaning of “connected”
34.Section 5 defines the meaning of a connected charity or CASC for the purposes of the Act. Charities and CASCs are not connected with one another unless their purposes and activities are the same, or substantially similar.
35.The connected charity rule is largely based on the connected persons rule used more widely for tax purposes, and found at section 993 of the Income Tax Act 2007. Essentially charities or CASCs are connected with each other at any time during a tax year where they are controlled by same person, or connected persons, or where one charity or CASC has control over another charity or CASC.
36.Subsection (4) of section 5 applies the provisions of section 993 of the Income Tax Act 2007 to charitable trusts and provides a definition of “control” to be applied to trusts for the purposes of the scheme.
37.In applying section 993 of the Income Tax Act 2007, a trust is to be treated as if it were a company. As a result, the determination of whether parties are connected is applied in broadly the same way to a charitable trust as it is applied to a charitable company.
38.A charitable trust controls a person if the trustees, or any of them, in their capacity as trustees of the charitable trust controls the person.
39.Paragraph (c) of subsection (4) specifies the circumstances when a person has control of a charitable trust.
40.Subsection (5) of section 5 provides a further circumstance under which one charitable trust is connected with another charitable trust. Two charitable trusts are connected if at least half of the trustees of one charity are trustees of the other charity or are connected with persons who are trustees of that other charity.
41.For example if Charitable Trust X has four trustees, Mr A, Mr B, Mr C and Mr D and Charitable Trust Y has seven trustees, including Mr A and Mrs B (who is married to Mr B) then Charitable Trust X and Charitable Trust Y are connected.
42.No special provision is made for the definition of “control” as it applies to charities that are companies. Therefore section 994 of the Income Tax Act 2007 provides that “control” is to be read in accordance with sections 450 and 451 of the Corporation Tax Act 2010.