ICTA88/S519 exempts UK local authorities and local authority
associations from CT and IT on their income.
TCGA92/S271 (3) exempts UK local authorities and local
authority associations from CGT.
You can find a definition of local authority at
CTM40860 and of local authority
association at
CTM40865.
The only liability to tax of a local authority is in respect
of IT deducted from payments it makes of interest etc. This will
either be under ICTA88/S349 (see
CTM40875) or as a deposit taker within
the tax deduction scheme for interest (see CTM40875 and
CTM35050). Guidance on whether or not
tax should be deducted from payments of interest etc in particular
circumstances starts at
CTM40870.
Note, in particular, that FA02/S94 introduced legislation
whereby certain payments made or received by a local authority on
or after 1 October 2002 can be made without deduction of tax - see
CTM40870 for further details.
Local authorities are not within the Taxes Acts definition of
a company at ICTA88/S832 (1). They are, however, persons for the
purposes of the Taxes Acts (Interpretation Act 1978 Sch 1 says that
‘person’ includes a body of persons corporate or
unincorporate). It is therefore possible for a local authority to
control other companies within the meaning of ICTA88/S416 and for
those companies to be associated with one another within the
meaning of ICTA88/S13.
From 1 April 2000 it is also possible for subsidiary
companies of a local authority to form a group for group relief
purposes in some circumstances. This is because a local authority
that is also a body corporate satisfies the definition of
‘company’ in ICTA88/S413 (2) introduced by FA00. This
means that it is possible for two subsidiaries to be in a group
relationship with each other because they are both 75% subsidiaries
of a third company - ICTA88/S413 (3)(a). So the subsidiaries can
claim and surrender group relief between one another. It is not,
however, possible for a local authority to surrender any
‘losses’ or other excess amounts to its subsidiary
companies, as the authority itself is not within the charge to CT.
So it has no amounts eligible for relief from CT as required by
ICTA88/S402 (1).
Note that the guidance in the previous paragraph applies only
for the purposes of group relief and does not affect the CG
position. Different criteria will apply for CG (see CG45000+).
