Annex 1: Minor Changes in the Law Change 93: General calculation rules: exceptions from the disallowance of expenditure on business entertainment and gifts in calculating the profits of non-trade and non-property businesses: sections 1298 to 1300
This change extends an exception made in calculating profits of a business which is a trade or property business to non-trade and non-property businesses.
It brings the income tax and corporation tax codes back into line.
Section 577 of ICTA (business entertaining expenses) prohibits the deduction of business entertaining expenditure in calculating profits chargeable to tax under Schedule D. Profits chargeable to tax under Schedule D include not only profits of a trade, profession or vocation, whether chargeable under Case I, II or V of that Schedule, but also profits chargeable under other Cases of that Schedule. Section 21A(2) of ICTA applies section 577 of ICTA to the computation of income under Schedule A.
Section 577(8) of ICTA extends the restriction of expenses to those incurred in the provision of gifts.
There are a number of exceptions from the restriction under section 577(1) or (8) of ICTA. Subsection (9) makes an exception for “expenditure incurred in making a gift to a body of persons or trust established for charitable purposes only” and two named bodies are treated as such a body of persons for this purpose. This exception applies only in “computing profits under Case I or II of Schedule D”.
So the exception provided by section 577(9) of ICTA does not apply to businesses other than trades, professions and vocations or property businesses.
It is not HMRC policy, despite the words of section 577(9) of ICTA, to make a distinction in the application of the exception between trades and property businesses and other businesses. Sections 1298 to 1300 of this Act extend the benefit of the exception in principle to those other businesses.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.