Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN45 Secondments to charities and educational institutions

Who is likely to be affected?

1   Employers liable to pay income tax who second employees to charities or educational institutions on a temporary basis.

General description of the measure

2   Legislation will be introduced in Finance Bill 2007 to ensure that the correct amount of salary costs are deducted when an employer seconds an employee to a charity or educational institution.

Operative date

3   The measure will apply to salary costs paid on or after 6 April 2007.

Current law and proposed revisions

4   Under section 74 of the Income and Corporation Taxes Act 1988 (ICTA), expenses incurred by an employer can be deducted in calculating profits if they are incurred 'wholly and exclusively' for the purposes of a trade, profession or vocation.

5   This rule is relaxed in cases where an employer seconds an employee to a charity or educational institution on a temporary basis. By virtue of section 86 ICTA, salary costs can continue to be deducted from profits as if the employee were still working for the employer.

6   Both these rules are, however, subject to provisions in section 43 of the Finance Act 1989 and Schedule 24 to the Finance Act 2003 which prevent an employer from making a deduction for remuneration where such costs are not paid within nine months of the end of the relevant accounting period.

7   This legislation has been rewritten for income tax purposes by the Income Tax (Trading and Other Income) Act 2005 (ITTOIA). However, the redrafting in ITTOIA inadvertently disapplied the provisions in section 43 of the Finance Act 1989 and Schedule 24 to the Finance Act 2003. This measure will restore the position. It will do so by amending the relevant sections of ITTOIA to ensure that the legislation operates as intended.

Further advice

8   If you have any questions about this change, please contact Craig Mason on 020 7147 2599 (email: Craig.Mason@hmrc.gsi.gov.uk) or Ruth Curtice on 020 7147 2602 (email: ruth.curtice@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk