What does section 474 of the Corporation Tax Act 2010 do?

Section 474 imposes a corporation tax charge on payments received by a charitable company from another charity where the payment is not made for full consideration, is not otherwise chargeable to corporation tax, and does not qualify for any other charitable exemption under the Act. It serves as an anti-avoidance measure to prevent non-charitable expenditure escaping tax.

Is the exemption for payments applied to charitable purposes automatic under section 474?

No, the exemption is not automatic. The charitable company must make a formal claim to exclude from its total profits the portion of the payment that has been applied solely to charitable purposes. Without a claim, the full amount of the payment remains chargeable to corporation tax on income.

How does section 474 treat discretionary payments from trustees?

Where the payment is a discretionary payment from trustees to which section 494 of the Income Tax Act 2007 applies, both the corporation tax charge and the charitable purposes exemption operate by reference to the grossed-up amount of the payment as defined in that section, rather than the actual cash amount received by the charitable company.

What are the three conditions that must be met for the charge under section 474 to apply?

The charge applies when the payment is not made for full consideration in money or money's worth, is not already chargeable to corporation tax under another provision, and is not of a type qualifying for exemption under any other charitable exemption in the same Part of the Act. All three conditions must be satisfied simultaneously.

Corporation Tax Act 2010 section 474

Payments from other charities: corporation tax liability and exemption

Section 474 imposes a corporation tax charge on certain payments received by a charitable company from another charity, while providing an exemption where those payments are applied to charitable purposes.

Payments received by a charitable company from another charity are chargeable to corporation tax where they are not made for full consideration, are not otherwise chargeable, and do not qualify for any other charitable exemption under this Part.
The charge is to corporation tax on income, but an exemption applies to the extent the payment is used solely for charitable purposes.
Where the payment is a discretionary payment from trustees under section 494 of ITA 2007, the charge and exemption apply to the grossed-up amount rather than the actual payment received.
The exemption for payments applied to charitable purposes is not automatic — the charitable company must make a formal claim.

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