Corporate Tax Newsletter – December 2021

Uncertain Tax Treatments Requirements
Demolition of a Building
Charitable Trading Exemption
Registering as a Charity with HMRC


Uncertain Tax Treatments Requirements

New legislation has been drafted by HMRC which requires large businesses to notify HMRC where they have adopted an uncertain tax treatment. Large businesses are those with a turnover above £200m or a balance sheet total of over £2 billion. Please note, these totals are calculated on a group basis.

Amounts of Corporation Tax, Income Tax (including PAYE) and VAT will be classified as uncertain if the tax treatment to which they relate meets one of two legislative criteria:

  • That a provision has been made in the accounts for the uncertainty; and
  • That the tax treatment applied is not in accordance with HMRC’s known position

An example of this could be where a tax treatment applied relies on an interpretation or application of the law which is not in accordance with the way it is known HMRC would interpret or apply the law.

The threshold for notification is where the uncertain tax treatment is greater than £5m.

Notification will be required annually at the same time as annual returns e.g., the filing of the company corporation tax return CT600.

Should you wish to discuss this further, please do not hesitate to get in contact with the team.


Demolition of a Building

The demolition or destruction of a building is not generally classed as a “disposal” for tax purposes: it forms a single asset with the land, and so the demolition does not count as the “entire destruction” of the asset.  This means that when a building is demolished or destroyed, a capital loss would not generally arise.  However, a claim can be made to treat the building and land as separate assets – if made, this claim means that a capital disposal does, in fact, occur on demolition / destruction of a building. 

This is not an automatic claim and it does need careful consideration.  This is because, as well as giving rise to a capital loss on the building, the claim means that the land is also treated as being disposed of at market value – which will often give rise to a capital gain.  Hence depending on the values involved, this claim can sometimes give rise to a tax charge overall, rather than a capital loss.  If you are contemplating the demolition of a building, however, please let us know.  The claim is often beneficial – ensuring it is considered is especially important if you are considering a disposal of the land after the demolition.

Should you wish to discuss this further, please do not hesitate to get in contact with the team.


Charitable Trading Exemption

There is a popular misconception that charities are exempt from all forms of taxation. Unfortunately, this is not the case. There are various exemptions relating to specific sources of income given certain conditions are satisfied. One of the main exemptions is the trading income exemption.

Income generated within one of the following categories is not chargeable to tax where the funds are applied for the purposes of the charity and a claim for relief is made:

  • Profits of a charitable trade (the ‘main relief’). This is where either (1) the trade is exercised in the course of carrying out a ‘primary purpose’ of the charity; or (2) the work in connection with the trade is mainly carried out by the charity’s beneficiaries;
  • Profits from fund-raising events; and
  • Profits of the small fund-raising trades which do not qualify for the main relief. To qualify for this relief, the charity’s ‘trading and miscellaneous income’ must fall within a specified limit.

Specified small trade limit

The main condition is the trading and miscellaneous income condition. This is met if:

  • The sum of the charity’s trading income and miscellaneous income for the tax year/accounting period do not exceed the requisite limit for the tax year/accounting period. This is equal to 25% of the charity’s total income  for the year subject to a minimum amount of £8,000 and a maximum amount £80,000; or
  • The charity had, at the beginning of the tax year/accounting period, a reasonable expectation that the limit would not be exceeded

This relief could prove valuable for charities in these current times where cash may be harder to come by. If the limit is exceeded within your charity, it is possible to set up a trading subsidiary. The subsidiary will then donate the profits from the trade to the charity. The company will receive a corporate tax deduction in respect of the gift and the charity will not be taxable on it, subject to some conditions.


Registering as a Charity with HMRC

After a charity has registered with OSCR (in Scotland, or the Charities Commission in England & Wales or Charities Commission for Northern Ireland in Northern Ireland), it must also apply to HMRC to gain recognition as a charity.

To gain recognition from HMRC and obtain a HMRC reference for tax exemption purposes and also for Gift Aid (it serves a dual purpose) the charity will need to complete the online application form which can be reached here.  Once the application has been submitted, the charity has 30 working days to post the documents requested (including accounts and governing document). The application reference needs to be noted on the documents and the covering letter so it can be linked to the online application.

After the application is completed and processed by HMRC and the charity reference number and exemption date has been obtained, the charity or their tax advisor can contact HMRC and ask them to update the charity’s record so they can move to ‘irregular filing’ for their corporation tax returns (every 4-6 years when a return is requested by HMRC).


Get in touch

Paul Carrie

Paul Carrie

I am a corporate tax specialist with experience in both corporate and partnership tax compliance and have worked with businesses ranging from small local businesses to multi-national corporations and private equity houses. I spent 10…
Dawn MacDougall

Dawn MacDougall

I was previously head of tax in EY’s Inverness office where I worked with owner-managed businesses and landed estates throughout the UK. I qualified as a Chartered Accountant in EY’s Edinburgh office and before re-joining…