ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice. Change 98: Charitable trusts: meaning of non-charitable expenditure: sections 543, 544 and 545
This change clarifies the meaning of “non-charitable expenditure”.
Section 506(1) of ICTA defines “charitable expenditure” as:
“(subject to subsections (3) to (5) below) expenditure which is exclusively for charitable purposes.”
Section 506(3) to (5) treats certain payments, investments or loans as amounts of non-charitable expenditure.
Section 505(4) of ICTA restricts a charity’s tax exemption by reference to non-charitable expenditure. “Non-charitable expenditure” is not defined but, by implication, it is expenditure which is not charitable expenditure.
Sections 543, 544 and 545 set out the definition of “non-charitable expenditure” in some detail, to reflect practice and HMRC guidance.
Section 543(1)(a) to (f), supported by section 544, provide in relation to trades, property businesses and miscellaneous transactions, that it is losses which may count as non-charitable expenditure, rather than those expenses which are required to be taken into account in calculating the profits or losses concerned.
Section 543(1)(a) to (f) also ensure that such losses do not count as non-charitable expenditure if corresponding profits would have been exempt under the provisions about small-scale trades, fund-raising events, lotteries or property income in sections 526, 529, 530 and 531. And section 543(1)(a)(i) makes it clear that losses made in a charitable trade do not count as non-charitable expenditure.
Section 545 supports section 543(1)(f), making it clear that expenditure (which is not itself defined in the source legislation) includes capital expenditure, but not the making of investments or loans or the repayment of loans made to the charitable trust. Section 543(1)(i) and (j) then make specific provision about investments or loans that are not approved charitable investments or loans, reflecting section 506(4) of ICTA.