Corporation Tax: loans to participators, trustees of charitable trusts
Published 25 November 2015
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Who is likely to be affected
This measure affects some close companies (broadly companies controlled by 5 or fewer participators) which are part of an ownership structure which includes companies, trustees and a charity and which make loans or advances to their participators (broadly their shareholders).
General description of the measure
The measure exempts loans or advances made by close companies to trustees of charities for charitable purposes from the tax charge applied under the loans to participators rules.
Policy objective
The government recognises that charities play a vital role in our society, and wishes to ensure that they are not adversely impacted by rules designed to deter the extraction of value by individuals from close companies. Therefore, this measure introduces a partial exemption for charities from the tax charge on loans or advances made by close companies to their participators where it is clear that individuals are not benefitting personally from such loans, ie where it is clear that the loan or advance is being made for wholly charitable purposes. This will allow charities to retain this money to further their charitable objectives and help the communities they serve.
Background to the measure
The introduction of new anti-avoidance rules in 2013, followed by a consultation on whether to reform the loans to participator rules more widely, raised awareness of the application of these rules to charities. Having discussed the matter with interested parties, the government agreed that some of the transactions being caught did not fit the policy rationale of the rules (because the funds could not end up in the hands of individuals for their personal use). Also, the particular way some charities have to structure can give rise to a loans to participator charge in circumstances which would not likewise be caught in a non-charity corporate group, creating an unlevel playing field. This measure is the outcome of ongoing discussions with industry to explore whether a targeted exemption could better address the purpose of the legislation and remove the burden for charities.
Detailed proposal
Operative date
The measure will apply to loans or advances made on or after 25 November 2015. Charities may refrain from accounting for any section 455 charge which could arise between this date and Royal Assent to Finance Bill 2016. However if the exemption is not ultimately approved by Parliament then charities will be liable to the section 455 charge according to the current law.
Current law
Current law is included in chapter 3 of part 10 Corporation Tax Act 2010.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to create an exception from the section 455 charge. This will apply to some loans or advances made by close companies to trustees (corporate or individual) of charitable trusts which are currently liable to pay the tax charge because those trustees are participators or associates of participators in the close company. The exemption will apply where such a trustee receives a loan or advance, and it is applied wholly to the purposes of the charitable trust. Section 455 will continue to apply to charities where loans or advances are made in any other relevant circumstances as will the charge to tax: other arrangements in section 464A.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| nil | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
There is no impact on individuals because this is a change that affects charities only. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is not expected to have an adverse equality impact on people with any protected characteristic.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses. The measure is intended to exempt charities from paying tax on loans to participators.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
HMRC will incur negligible costs in implementing this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through monitoring information on the tax returns and associated documentation of affected taxpayer groups and through HMRC compliance activity.
Further advice
If you have any questions about this change, please contact Lorraine Coster on Telephone: 03000 585676 or email: lorraine.coster@hmrc.gsi.gov.uk.
Declaration
David Gauke MP, Financial Secretary to The Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.