Income Tax (Trading and Other Income) Act 2005 section 86A

Contributions to flood and coastal erosion risk management projects

Section 86A provides a tax deduction for traders who contribute money or services to qualifying flood or coastal erosion risk management projects, where those expenses would not otherwise be deductible in calculating trading profits.

• A trader who makes a qualifying contribution to a qualifying flood or coastal erosion risk management project can deduct the cost when calculating trading profits, even if the expense would not normally be allowable — and this section takes priority over capital allowances
• The deduction is denied entirely if the contributor or a connected person receives, or is entitled to receive, a disqualifying benefit in connection with the contribution, regardless of who provides the benefit or whether it arises from the project
• If a deduction has been claimed and the contributor or a connected person later receives a refund or compensation (in money or money's worth), that amount is taxed as a trading receipt — or as a post-cessation receipt if the trade has permanently ceased
• A disqualifying benefit means money or other property, but specifically excludes refunds of monetary contributions, compensation for services contributed, and flood defence structures, additions to structures, land, plant, machinery or rights over land that are used for the purposes of the project