What is the non-exempt amount under section 493 of the Corporation Tax Act 2010?

The non-exempt amount is the lower of a charitable company's non-charitable expenditure (amount A) and its attributable income and gains (amount B) in an accounting period. It determines how much of the charity's otherwise exempt income and capital gains loses tax-exempt status and becomes subject to corporation tax.

How are attributable income and gains calculated for the purposes of section 493 CTA 2010?

Attributable income and gains is the total of the charity's income that would be exempt under the corporation tax charity exemptions in section 492(3), plus capital gains that would not be chargeable under section 256(1) of TCGA 1992. These figures are calculated before applying any restrictions flowing from the non-exempt amount itself.

Why are restrictions under section 492(2) and TCGA 1992 section 256(4) ignored when calculating attributable income and gains?

These restrictions are ignored to prevent a circular calculation. The full amount of income and gains that would be exempt without any non-charitable expenditure restriction is determined first. Only then is the non-exempt amount capped at that level, ensuring the restriction never exceeds the income and gains available to be taxed.

Can the non-exempt amount exceed a charitable company's total attributable income and gains?

No. The non-exempt amount is the lower of non-charitable expenditure and attributable income and gains. Even if non-charitable expenditure exceeds total attributable income and gains, the non-exempt amount is capped at the attributable income and gains figure, because the restriction cannot exceed the amount available to be taxed.

Corporation Tax Act 2010 section 493

The non-exempt amount

Section 493 explains how to calculate the non-exempt amount for a charitable company's accounting period, which determines the extent to which the charity's tax exemptions are restricted when it incurs non-charitable expenditure.

A charitable company has a non-exempt amount when it has both non-charitable expenditure (amount A) and attributable income and gains (amount B) in the same accounting period.
The non-exempt amount is the lower of amount A (non-charitable expenditure) and amount B (attributable income and gains).
Attributable income and gains means the total of the company's income that would be exempt from corporation tax under the charity exemptions, plus any capital gains that would not be chargeable gains under the charity exemption in TCGA 1992.
When calculating attributable income and gains, you ignore any restrictions already imposed by section 492(2) of this Act on the income exemptions, and any restriction imposed by section 256(4) of TCGA 1992 on the capital gains exemption.

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