Income Tax Act 2007 Schedule 2 paragraph 107

Non-charitable expenditure

Paragraph 107 provides a transitional rule that limits the amount of tax relief or exemption that can be clawed back from a charity for pre-2006-07 tax years when excess non-charitable expenditure from 2007-08 onwards is carried back to those earlier years.

• Where sections 562 to 564 treat excess expenditure from 2007-08 or later as non-charitable expenditure of 2005-06 or earlier, a cap applies to the relief that can be disallowed for those earlier years
• The disallowance for any pre-2006-07 year cannot exceed the amount that would have been disallowed under the old ICTA rules (sections 505, 506 and Schedule 20 Part 3) had those rules still been in force
• This cap is determined by ignoring the new carry-back rules in sections 562 to 564 and instead applying the earlier ICTA provisions as they stood before amendment by both the Finance Act 2006 and the Income Tax Act 2007
• The purpose is to ensure that charities are not penalised more harshly for earlier years than they would have been under the legislation that was actually in force at the time