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HMRC internal manual

Company Taxation Manual

Particular bodies: charities: 'profit shedding' by Gift Aid

 Charities often form non-charitable companies to carry on any trading activities.  These are not exempt from tax, but the profits of these companies are usually then donated to an associated charity by Gift Aid (see CTM09060). This enables the charity toavoid liability on trading profits that are not exempt.

The trading company receives relief for the Gift Aid payment as a deduction from its profits under CTA10/S189, normally in the accounting period in which the payment is made.

However, CTA10/S199 provides for a deduction when companies wholly owned by charities make Gift Aid payments outside an accounting period.  Under these provisions a company wholly owned by one or more charities has up to nine months from the end of an accounting period to make the payment and still get the deduction against CT profits of the earlier accounting period.

HMRC Charities has responsibility for all companies controlled by charities, excluding any cases in groups handled by LB.  Any other company controlled by a charity (or charities) that is not dealt with by HMRC Charities should be transferred.

Avoidance: risk assessment

Any company can pass all or part of its profits to charity using Gift Aid.

HMRC Charities wish to see any cases where a company passes all or most of its profits to a charity by Gift Aid.  HMRC Charities is particularly interested in cases where the use of Gift Aid appears to be part of a wider series of transactions directed at avoidance.