What does section 564 of the Income Tax Act 2007 do?

Section 564 requires that any necessary tax adjustments are made when excess non-charitable expenditure is carried back to earlier years under section 562. It authorises HMRC to issue amended assessments, recalculate interest charges, or make any other appropriate adjustments to restore the correct tax position for the affected earlier years.

What types of adjustments can HMRC make under section 564?

The section is deliberately broad. HMRC may make or amend assessments, recalculate interest charges, or amend other tax computations for affected years. There is no restriction on the type of adjustment provided it is required as a consequence of the reallocation of excess non-charitable expenditure under section 562.

Why are adjustments needed after excess non-charitable expenditure is reallocated?

When section 562 carries back excess non-charitable expenditure to earlier years, income or gains previously treated as exempt may become taxable. Section 564 ensures HMRC can update tax records and liabilities for those earlier years, including issuing additional assessments and recalculating any consequential interest charges arising from revised liabilities.

Can you give an example of how section 564 works in practice?

If a charity has £50,000 excess non-charitable expenditure in 2023/24 carried back to 2022/23 under section 562, then £50,000 of previously exempt income becomes taxable. Under section 564, HMRC may issue an amended assessment for 2022/23 to collect the tax now due, together with any consequential interest charges.

Income Tax Act 2007 section 564

Adjustments in consequence of section 562

Section 564 requires that any necessary tax adjustments are made when excess non-charitable expenditure is carried back to earlier years under section 562.

When section 562 attributes excess expenditure to earlier tax years, consequential adjustments must follow
Adjustments may take the form of making or amending assessments, or any other appropriate method
This ensures that the correct tax position for affected earlier years is restored, including any impact on tax, interest or other charges
There is no restriction on the type of adjustment that may be made, provided it is required as a consequence of section 562

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