The guidance at CTM40400 onwards concerns housing associations ( CTM40405) registered as industrial and provident societies (see CTM40500 onwards). They are companies for the purposes of the Taxes Acts and are chargeable to CT on their income and chargeable gains (see CG73100 onwards) subject to such relief as is available under:
Because of the rules governing incorporation as an Industrial
and Provident Society (see
CTM40505) and the rules for registering
with the Housing Corporation we took the view that a housing
association would not be within the definition of an investment
company in ICTA88/S130 and would not, therefore, be entitled to
relief for management expenses under ICTA88/S75, because its main
business was the provision of housing, and not the making of
investments. This view is supported by Atkinson J's judgement in an
Excess Profits Tax case, CIR v The 1933 Housing Society Ltd.
However, in Medway Housing Society Ltd v Cook 69TC319, the High
Court held that Medway was an investment company within the meaning
of ICTA88/S130 (see
The judgement in the Medway case does not say that all housing associations will be investment companies, nor does it say that 'purpose' is no longer an important factor in deciding whether a company is within ICTA88/S130. What it does say is that it is important to look at what the company actually does and why; for example, is it operating in a commercial manner, does it hold the assets as investments to produce a profitable return, is that incidental to some other business?
Whether or not a housing association is an investment company will depend on the particular facts in each case. It is, however, likely that all Large Scale Voluntary Transfer associations set up to acquire the housing stocks of local authorities will be able to demonstrate the same degree of commerciality as Medway so as to be within the definition of an investment company.
Where on the particular facts a housing association is not an
investment company, then for accounting periods ending
before 1 April 1996 any interest paid by the
association would only qualify for deduction under ICTA88/S486
(1)(b) provided it satisfied the tests in ICTA88/S338 (6). As a
housing association will not normally carry on a trade, relief
would only be available by virtue of Section 338 (6)(d). Excess
charges paid by a trading or investment company could normally be
carried forward as trading losses or management expenses
respectively but where charges were allowed under Section 338
(6)(d) there was no basis for the carry forward of excess charges.
For accounting periods ending on or after 1 April 1996 FA96 amended Section 486 (1). Interest is no longer dealt with as a charge but under the loan relationship provisions. Relief for interest payable is therefore available as a Case III debit. Unlike the situation for pre loan relationship accounting periods, the carry forward of unrelieved interest does not depend on the company's status as an investment company and excess Case III debits may be carried forward and relieved against non-trading profits in the normal way.