Annex 1: Minor changes in the law Change 32: Charitable companies: exemption for post-cessation receipts of certain trades: sections 478, 479, 485, 490, 491, 492 and Schedule 1
This change introduces an exemption from corporation tax, in the case of charitable companies, for the post-cessation receipts of trades whose profits would be exempt if the trade had not ceased.
In contrast with the equivalent income tax rules in ITA, adjustment income is subsumed within trading profits and, therefore, unlike the position for income tax, is already covered by the charitable exemptions.
Post-cessation receipts are taxed under Chapter 15 of Part 3 of CTA 2009. There is no exemption for post-cessation receipts in the source legislation for charitable companies, other than the exemption in section 46 of FA 2000 (rewritten in sections 480 to 482) which applies only if the receipts are below a certain level. But HMRC practice is to treat post-cessation receipts as exempt from corporation tax if they arise from a trade that benefited from the exemption in section 505(1)(e) of ICTA (rewritten as section 478).
If a trade is treated as two separate trades in accordance with section 479(2) and (3) any post-cessation receipts are apportioned to the two parts (and this could mean completely apportioned to just one part if relating only to that part) and an exemption is then available for the receipts apportioned to the charitable part.
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.