BIM47610 - Specific deductions: trade organisations: LEAs, Learning & Skills Council, TECs, LECs, BLOs and URCs

Statutory relief for payments

A trader may make donations to a local enterprise organisation or urban regeneration companies. These donations may be made for benevolent reasons rather than wholly and exclusively for the purposes of the trade. Absent a special provision, such expenditure would be disallowed by ICTA88/S74. Relief for these expenses is given by ICTA88/S79, ICTA88/S79A and ICTA88/S79B. Similar contributions made by investment companies are treated as expenses of management.

Local Enterprise Agencies (LEAs)

ICTA88/S79 allows deductions for contributions to approved LEAs.

An LEA is a body which has as its sole objective the promotion or encouragement of industrial and commercial activity or enterprise in a particular area in the UK with particular reference to encouraging the formation and development of small businesses.

An LEA can take various forms and it will not necessarily be called a ‘local enterprise agency'. It may be a body corporate or a trust or an unincorporated association but it must have a rule preventing it from distributing income or profits to its members or those who control it.

In order for donations to qualify, the LEA has to obtain approval from the Secretary of State (ICTA88/S79 (4)). If doubts arise as to whether a particular LEA is approved then you should ask for a copy of the LEA’s letter of approval.

Some larger bodies may have the promotion or encouragement of industrial and commercial activity or enterprise in a particular area in the UK as one of its principal objectives. In this situation approval may be given in respect of a separate fund which is maintained by the body and used wholly in pursuance of this objective.

Learning and Skills Council [formerly Training and Enterprise Councils (TECs)]

ICTA88/S79A provides relief for contributions to the Learning and Skills Council.

On 2 April 2001, the Learning and Skills Council replaced the TECs and the Further Education Funding Council. It is responsible for funding and planning education and training for over 16 year olds in England.

Local Enterprise Companies (LECs)

ICTA88/S79A provides relief for contributions to LECs.

LECs are private companies in Scotland with boards consisting mainly of local businessmen and women. They work under contracts entered into with Scottish Enterprise (formerly the Scottish Development Agency) or Highlands and Islands Enterprise (formerly the Highlands and Islands Development Board). LECs have a wider remit than TECs, covering economic development and environmental functions as well as training.

Business Link Organisations (BLOs)

ICTA88/S79A provides relief for contributions to BLOs.

BLOs provide a single point of access to all business support services provided by key local organisations in England including the LECs, LEAs, Chambers of Commerce, Local Authorities and the Employment Department. A BLO set up in say Anytown will be referred to in practice as ‘Business Link Anytown'. The Business Link network now comprises many local operators covering the whole of England selected by the Small Business Service to provide a range of support, information and advice for small businesses on every issue affecting their business. You will find up to date information on BLOs at http://www.businesslink.org.

A BLO is usually set up as a company limited by guarantee although it may, more rarely, be a company with a share capital. The board usually comprises representatives of the organisations for which the BLO provides a single point of access and local businessmen and women.

If the contributors to a BLO are to receive tax relief for their contributions, then it must be authorised by or on behalf of the Secretary of State for Industry to use the service mark ’Business Link'.

Urban Regeneration Company (URC)

ICTA88/S79B provides relief for contributions to an URC.

An URC is an independent arms length body intended to co-ordinate the regeneration of a designated urban area.

In order for donations to qualify for relief under ICTA88/S79B, the Treasury has to designate the organisation as an URC. This order can be backdated. This means that donations made before the date of the order can qualify for relief.

If there is any doubt as to whether a particular organisation qualifies as URC, you should ask for details of the Treasury order designating the organisation as URC.

Form of contribution

ICTA88/S79 (1), S79A (1) and S79B (1) refer to expenditure incurred in making contributions ‘whether in cash or in kind'. The reference to contributions ‘in kind' is intended to cover the situation where a trader provides services to the agency without charge, for example, by seconding an employee to work for the agency, or providing accommodation rent free. The trader may claim a deduction in computing his profits for the employee's wages or the expenses incurred on rent, rates etc in connection with the property in so far as they are not otherwise deductible as, for example, in BIM46815.

If a trader gave one of his own assets, for example, a car, to an agency, it might be argued that he had not ‘incurred expenditure' in making a contribution. In practice, however, a deduction should be allowed to the extent that the original expenditure has not been relieved either by a deduction or capital allowances.

Anti-avoidance provisions - ICTA88/S79 (3) and (9), ICTA88/S79A (3) and (4), ICTA88/S79B (3) and (4)

As an anti-avoidance measure, contributions are not deductible where the contributor or someone connected with them receives, or is entitled to receive, a benefit in connection with the making of the contribution. Where relief has already been given for a contribution and the contributor, or someone connected with them, receives a benefit attributable to it, the contributor is chargeable on the value of the benefit as a trading receipt or under Case VI of Schedule D as appropriate. The definition of connected persons in ICTA88/S839 applies, (see CG14532 onwards).

In practice, however, relief for a contribution should not be denied, nor an assessment made to recover relief already given, where the cost of obtaining the benefit provided by the body concerned would, if incurred directly by the contributor as a normal arm's length transaction, be allowable as a deduction or as an expense of management. An example is the cost of a relevant training course for the contributor's employee. Any case of doubt or difficulty should be submitted to CT&VAT (Technical). (See CTM15340 where the contributor is a company owned by the LEA, TEC, LEC or BLO.)