What is an approved charitable loan under section 514 of the Corporation Tax Act 2010?

An approved charitable loan is a loan made by a charitable company that meets two conditions: it must not be made by way of investment (Condition A), and it must fall within one of four permitted categories under Condition B, such as being made to another charity for charitable purposes or approved by HMRC.

What are the four permitted categories for a charitable loan under Condition B?

The four categories are: a loan to another charity for charitable purposes; a loan to a beneficiary in furtherance of the charity's objectives; money deposited on current account with a bank without a linked lending arrangement; or a loan approved by HMRC as genuinely benefiting the charity and not motivated by tax avoidance.

Why does it matter whether a charitable loan is approved under section 514?

If a loan qualifies as an approved charitable loan, it will not be treated as non-charitable expenditure under section 496. This is significant because non-charitable expenditure can restrict a charitable company's tax exemptions, potentially resulting in a loss of favourable tax treatment under United Kingdom corporation tax law.

Can HMRC approve a charitable loan that does not meet the first three categories under Condition B?

Yes. Where none of the first three categories apply, an officer of HMRC may still approve the loan on a claim basis. HMRC must be satisfied the loan genuinely benefits the charitable company and is not being used as a tax avoidance device by the charity or any other person.

Corporation Tax Act 2010 section 514

Approved charitable loans

Section 514 defines which loans made by a charitable company qualify as "approved charitable loans" for the purposes of determining non-charitable expenditure under section 496.

A loan must not be made by way of investment to qualify as an approved charitable loan.
The loan must also satisfy one of four permitted purposes: being made to another charity for charitable purposes, to a beneficiary in furtherance of the charity's objectives, deposited on current account with a bank without a linked lending arrangement, or approved by HMRC as benefiting the charity and not motivated by tax avoidance.
Both conditions must be met simultaneously — the loan must be non-investment in nature and fall within one of the four permitted categories.
Where none of the first three categories apply, HMRC can still approve the loan on a claim basis if satisfied it genuinely benefits the charity and is not a tax avoidance device.

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