A variety of bodies have been set up in recent years, ranging from local agencies, with a budget of a few thousand pounds contributed by local business concerns to, at the other extreme, large development, training and enterprise. The main purpose of all these diverse concerns is the regeneration of business and employment in a particular locality. This programme is delivered in a variety of ways, for example:
It is not always easy to decide if any part of the activities undertaken by an entity amounts to carrying on a trade but, in general terms, trade implies the provision of goods or services to a customer for reward. You will need to examine the business accounts to establish the facts. In particular, you will need to identify and, if necessary, to isolate activities that are supported by paying customers. By way of contrast, a business advisory centre that is wholly maintained by contributions from altruistic concerns or individuals would not be trading - there being no customer/supplier relationship. However where a public agency contracts with an entity to provide business advisory or other services then this will amount to a trade if the contract with the public agency is on a commercial basis. In such circumstances it is immaterial that those benefiting from the advice are not ‘paying customers’ of the provider - the customer is the public agency and the provider is the entity.
A more difficult problem arises with the development or conversion of buildings or the provision of the infrastructure of a factory estate. There may be a mixture of outright sales or the grant of leases. You may have to consider whether the need to provide incentives for the regeneration of employment over-rode commercial considerations. A large loss on the project may have been apparent from the outset and it may be that the loss did not arise in the ordinary course of trade. Similar considerations apply to losses arising on loans that have been made to support ailing companies, and again you should consider whether seemingly uncommercial transactions are by way of trade. The main object is to ensure that expenditure on non-trading activities is excluded.
Whether or not there is trading, all these concerns will be taxable under the normal rules in respect of any CG and income from interest, rents and the like. There is no exemption under ICTA88/S519 for companies operated by local authorities.
The taxation treatment of any grants received follows normal
principles (
BIM40450 onwards). If applied towards
the cost of plant for use in a trade you should consider CAA01/S532
(CA14100). Grants for non-trading activities are excluded.
Where grants are applied towards the cost of assets that are
within the CG provisions, you should have regard to TCGA92/S50
(CG15291).
