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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Particular bodies: local authorities: introduction

 CTA10/S984 and ITA07/S838 exempt UK local authorities and local authority associations from CT on their income.

TCGA92/S271 (3) exempts UK local authorities and local authority associations from CGT.

See CTM40860 for a definition of local authority and CTM40865 for local authority association.

The only liability to tax of a local authority may be on IT deducted from payments it makes of yearly interest under ITA07/PART15/CHAPTER3 or as a deposit taker within the tax deduction scheme for interest (see SAIM9035, CTM35050 and CTM40870).

FA02/S94 introduced legislation under which certain payments made or received by a local authority on or after 1 October 2002 can be made without deduction of tax - see CTM40870 for further details.

Local authorities are not within the Corporation Tax Acts definition of a company at CTA10/S1121.  They are, however, persons for the purposes of the Taxes Acts (Interpretation Act 1978 Sch 1 says that ‘person’ includes a body of persons corporate or unincorporate).  It is therefore possible for a local authority to control other companies within the meaning of CTA10/S449 and for those companies to be associated with one another within the meaning of CTA10/S25.

From 1 April 2000 it is also possible for subsidiary companies of a local authority to form a group for group relief purposes in some circumstances.  This is because a local authority that is also a body corporate satisfies the definition of ‘company’ in CTA10/S188 (1) (any body corporate) introduced by FA00.  This means that it is possible for two subsidiaries to be in a group relationship with each other because they are both 75 per cent subsidiaries of a third company – CTA10/S152 (b).   So the subsidiaries can claim and surrender group relief between one another.  It is not, however, possible for a local authority to surrender any ‘losses’ or other excess amounts to its subsidiary companies, as the authority itself is not within the charge to CT.  So it has no amounts eligible for relief from CT as required by CTA10/S99.

This applies only for the purposes of group relief and does not affect the CG position.  Different criteria will apply for CG (see CG45000 onwards).