Income Tax Act 2007 section 542

How income is attributed to the non-exempt amount

Section 542 sets out the mechanism by which a charitable trust's trustees choose which items of otherwise exempt income or chargeable gains are to be treated as taxable by attributing them to the non-exempt amount, and what happens if they fail to do so within the required timeframe.

• Where the restrictions on exempt income apply, the charitable trust must identify which specific items of income (such as trading income or investment income) lose their tax exemption, up to the value of the non-exempt amount calculated under section 541.
• The trustees themselves may choose the attribution by sending a notice to an officer of HMRC specifying which items of attributable income are to be matched against the non-exempt amount.
• If HMRC requests such a specification and the trustees do not respond within 30 days from the date of that request, an HMRC officer may step in and determine the attribution on the trustees' behalf.
• This mechanism ensures that the charitable trust can complete its tax return and self-assess its liability by clearly identifying which elements of income are no longer sheltered by the charity exemption.