3.17.1 Special rules apply to transactions between CASC owned subsidiary companies, CASC members and their connected persons. Connected persons includes close relatives of a CASC member or companies controlled by the member. CASCs undertaking such transactions may need to seek professional advice. Section 35 of the Finance Act 2014 allows tax relief on donations by companies to CASCs made in accounting periods ending on or after 1 April 2014. This legislation includes provisions which are intended to deter abuse of the relief by companies that are under the control of CASCs. Where there is abuse, the new provisions will result in some donations, or parts of donations being brought into the charge to tax. UK Charities are regulated by the Charity Commission for England and Wales, the Office of the Scottish Charities Regulator or the Charity Commission for Northern Ireland. CASCs are not regulated by an external organisation. These rules have been introduced to bring the situation with CASCs closer to that which exists with charities. 3.17.2 The provisions introduce the concept of ‘inflated member-related expenditure’ and apply where a company that is wholly owned or controlled by one or more CASCs:
employs a member of a parent CASC
purchases goods or services from a member of a parent CASC
on terms that are advantageous to the member, a company controlled by a member or any persons connected with the member, that would not be entered into with a third party (that is, are not at ‘arm’s length’). 3.17.3 If a company incurs inflated member-related expenditure, the amount of tax relief on any gift of money from that company to its parent CASC is reduced. The amount of the reduction is the total amount of the Inflated Member Related Expenditure. When a company owned by a CASC incurs inflated member-related expenditure it will be liable to pay Corporation Tax on the expenditure. The amount of the reduction is the whole of the related expenditure, not just the excess included in that amount. 3.17.4 If the amount of the inflated member-related expenditure is greater than the qualifying payment made in the same accounting period, then any excess expenditure is carried back to adjust qualifying payments for up to 6 earlier years. The excess expenditure is set off against the qualifying payments made by the company starting from the latest year and working back. 3.17.5 Where the expenditure, taken as a whole, is beneficial to the company rather than to the third party, then that expenditure will not fall within the definition of ‘inflated member-related expenditure’. The following example
illustrates what is meant by ‘beneficial’ under these rules. Example A company, owned and controlled by a CASC buys supplies from one CASC member and rents property from another. Both of the payments are more than what would be expected under an arm’s length arrangement. As a result CASC members benefit financially to the detriment of the company and its parent sports club. In the Accounting Period Ending (APE) 31 January 2016, the subsidiary company incurred total costs of £37,500 and £12,500 for the supply of sporting equipment and rent, respectively. In respect of the same APE the subsidiary made a qualifying gift of its entire net profit of £75,000 to the CASC. Because neither of the arrangements was at arm’s length the value of the qualifying gift would be reduced by £50,000 (37,500 + £12,500). Accordingly, the subsidiary would become liable to pay Corporation Tax on the profit of £50,000, rather than nil, despite the company donating its entire net profit to the CASC.