What is excess expenditure under section 562 of the Income Tax Act 2007?

Excess expenditure arises when a charitable trust's non-charitable expenditure in a tax year exceeds its available income and gains for that year. The difference between the non-charitable expenditure and the available income and gains is the excess expenditure, which is then carried back to earlier tax years under section 563.

How is excess expenditure treated under United Kingdom tax law for charitable trusts?

Excess expenditure is not disregarded but is carried back and treated as non-charitable expenditure of earlier tax years. The attribution rules in section 563 determine how far back it applies. This can cause the charity to lose previously enjoyed tax exemptions, potentially creating additional tax liabilities for those earlier periods.

What components make up a charitable trust's available income and gains under section 562?

Available income and gains comprise four components: total income calculated assuming full charitable exemptions apply, chargeable gains with full capital gains tax exemption assumed, attributable income and gains identified under section 540, and non-taxable sums such as donations and legacies that fall outside the tax net regardless of charitable status.

What are non-taxable sums in the context of section 562 of the Income Tax Act 2007?

Non-taxable sums are donations, legacies, and similar receipts that would not be liable to income tax or capital gains tax even without charitable exemptions. They fall outside the tax net on their own terms and are included in available income and gains to reflect the total resources at the trust's disposal during the year.

Income Tax Act 2007 section 562

Excess expenditure treated as non-charitable expenditure of earlier years

Section 562 deals with what happens when a charitable trust's non-charitable expenditure in a tax year exceeds its available income and gains, and how that excess is carried back to earlier years.

Where a charitable trust's non-charitable expenditure exceeds its available income and gains for a tax year, the difference is its "excess expenditure" for that year
Excess expenditure is treated as non-charitable expenditure of earlier tax years, to the extent it can be attributed to those years under section 563
Available income and gains includes total income, chargeable gains, attributable income and gains, and non-taxable sums such as donations and legacies
When calculating available income and gains, the charity's normal tax exemptions are assumed to apply in full, without the restrictions that non-charitable expenditure would otherwise impose

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