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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Employment Allowance: Connected persons – Charities

National Insurance Contributions Act 2014 - Section 3 and Schedule 1, Part 2, paragraphs 8 and 9

If, at the beginning of a tax year, two or more charities are connected with one another, then only one of them may claim the Employment Allowance. It is up to those charities to decide which charity will make the claim.

For the purpose of claiming the Employment Allowance, ‘charity’ has the same meaning as in section 18(1) of the Small Charitable Donations Act 2012, unless the provisions at item (5) of this page apply, whereby a company may be treated as if it were a charity.

When charities are considered to be connected for the purposes of claiming the Employment Allowance

(1) Two charities are ‘connected’ with one another if they are connected in accordance with the meaning of ‘connected persons’ within section 993 of the Income Tax Act 2007 and their purposes and activities are the same (or are substantially similar).

(2) In the application of section 993 of the Income Tax Act 2007, for the purposes of applying the Employment Allowance:

         (a) a charity which is a trust is to be treated as if it were a company (and accordingly a person)

(b) a charity which is a trust has control of another person if the trustees (in their capacity as trustees of the charity) have, or any of them has, control of the person

(c) a person (other than a charity regulator) has ‘control of a charity which is a trust if:   

(i) the person is a trustee of the charity and some or all of the powers of the trustees of the charity could be exercised by the person acting alone or by the person acting together with any other persons who are trustees of the charity and who are connected with the person

(ii) the person alone or together with another person, has power to appoint or remove a trustee of the charity

(iii) the person, alone or with other persons, has any power of approval or direction in relation to the carrying out by the trustees of any of their functions

(3) A charity which is a trust is also connected with another charity which is a trust if at least half of the trustees of one of the charities are:

(a) trustees of the other charity

(b) persons who are connected with persons who are trustees of the other charity

(c) or a combination of both (a) and (b)

and the charities’ purposes and activities are the same, or are substantially similar.

(4) In determining if a person is connected with another person for the purposes of applying the Employment Allowance, Section 993 of the Income Tax Act 2007 should be applied with the omission of subsection (3) of section 993 (and without applying item (2) of this page).

(5) If a charity (A) has control* over a company that is not a charity (B) then (B) is to be treated as if it were a charity and (A) and (B) are to be treated as being ‘connected’ for the purposes of applying the Employment Allowance. In this context, control* is to be read in accordance with items (i) and (II) contained below:

(i) the meaning of control* is contained within Part 10 of the Corporation Tax Act 2010 (see sections 450 and 451 of that Act). Where in section 450 of that Act, it refers to a person (P) having control of a Company (C) and (C) is a Limited Liability Partnership (LLP), then subsection (3) of section 450 is to include an additional condition which dictates that (P) will have control over (C) if (P) possesses, or is entitled to acquire the rights to a share of more than half the assets, or more than half the income of (C). In this circumstance the following control conditions are to be ignored.

(a) relationship is not one of substantial commercial interdependence (NIM06595)

(b) fixed rate preference shares (NIM06600)

(c) connection through a loan creditor (NIM06605)

(d) connection through a trustee (NIM06610)

(ii) Schedule 1, Part 2, paragraph (8) sub-paragraph (2) (b) of the National Insurance Act 2014.

(6) If, at the beginning of a tax year, a Charity (A) is connected with another Charity (B) - so that the ‘connected rules restriction’ contained at Section 3, subsection (2) of the Social Security Act 2014 prevents both from claiming the Employment Allowance - and (B) is then connected with another Charity (C) so that the ‘connected rules restriction’ also apply to the connection between (B) and (C), then for the purposes of applying the Employment Allowance (A) and (C) are also considered to be connected with one another and the ‘connected rules restriction’ will also apply to that connection. This will mean that only one Employment Allowance can be claimed by (A), (B) and (C) together.

For this purpose, the reference to Charity (A) being connected to Charity (B) and the reference to Charity (B) being connected to Charity (C) are to be read as meaning that each connection meets the requirements set out in Paragraph 8 (1)(a) and (b) National Insurance Contributions Act 2014.

In other words, they are connected with one another in accordance with section 993 of the Income Tax Act 2007 (meaning of ‘connected persons), and their purpose and activities are the same or substantially similar.