BIM45072 - Specific deductions: entertainment: gifts: exceptions: gifts to charities

You should not treat gifts made to charities as business entertainment expenditure. If such gifts are made for the purposes of the trade they are not disallowed by ITTOIA05/S47 (5) for individuals and partnerships and CTA09/S1300 (5) for corporate entities- see BIM45150 onwards for further guidance on other types of charitable gift, including Gift Aid.

For the purposes of this section, a charity includes any body defined as a charity by ITA07/S989 and in particular the Historical Buildings and Monuments Commission and the National Heritage Memorial Fund.

A trader may also donate to other voluntary bodies that are not registered charities. Where the gift is made for the purposes of the trade, ESC/B7 allows a deduction to a body established for educational, cultural, religious, recreational or benevolent purposes on the following conditions:

• The voluntary body is local in relation to the business activities,
• Its activities are not restricted to persons connected with the donor,
• The expenditure incurred is small in relation to the scale of the donor’s business.

In the same way, you should allow the ordinary annual subscription to a local trade association paid in the normal course of trade by a non-member.

The Extra-statutory concession at ESC/B7 is to be withdrawn with effect from 9 December 2010. Under this concession, when computing their taxable profits traders are allowed to deduct the cost of gifts to local bodies or associations established for educational, cultural, religious, recreational or benevolent purposes, as long as the expenditure was incurred for the purposes of the trade and was reasonably small in relation to the scale of the donor's business.

The tax legislation (section 47(5) of the Income Tax (Trading and Other Income) Act 2005 and section 1300(5) of the Corporation Tax Act 2009) now allows a deduction for gifts to charity when computing the taxable profits of a trade. The term charity is defined for this purpose by section 989 of the Income Tax Act 2007 as a body of persons or trust established for charitable purposes, it does not require the charity to be a registered charity. The Charities Act 2006 introduced an extended definition of a charitable purpose. The definition extends the categories of charitable purposes so that it would cover (amongst other things) educational, cultural, religious, recreational or benevolent purposes. As a result we consider any deduction that could have been claimed by concession would now be allowed under the current tax legislation.