Annex 1: Minor changes in the law made by the Act: Change 146: Exception of certain business gifts from the disallowance of expenditure on business entertainment and gifts in calculating the profits of non-trade and non-property businesses: section 867
This change extends an exception made in calculating profits, in the case of a business which is a trade or property business, to non-trade and non-property businesses.
Section 577 of ICTA (business entertaining expenses) prohibits the deduction of business entertaining expenditure in calculating profits chargeable to tax under Schedule D (section 18 of ICTA). Profits chargeable to tax under Schedule D include not only profits of a trade, profession or vocation, whether chargeable under Case I or II or Case V of that Schedule, but 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 15 of ICTA).
Section 577(8) of ICTA extends the restriction of deductible expenses under that section to the provision of gifts.
There are a number of exceptions from the restriction under section 577(1) or (8) to ICTA. Subsection (9) makes an exception for gifts to “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 was inserted by section 54 of FA 1980 in the predecessor of section 577 of ICTA, to give statutory form to an extra-statutory concession for donations by businesses to local charities. The scope of the former concession was broadened by the inserted exception, but the exception was restricted to “computing profits under Case I and II of Schedule D”.
The exception provided by section 577(9) of ICTA does not therefore apply to business other than trades, professions and vocations or property businesses.
Section 577 of ICTA is rewritten, in respect of such trades and property businesses, in sections 45 to 47 in Part 2 of this Act. This section borrows from those sections to provide the extension of the rules, including exceptions, to non-trade businesses and non-property businesses.
It was not Inland Revenue policy, despite the drafting used in section 577(9) of ICTA, to make a distinction in the application of the exception between trades and property businesses and other businesses. Section 867 extends 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 current practice.