BIM24810 | Meaning of trade: mutual trading and members clubs: mutual associations: specific activities: trade protection associations: procedural points when adopting HMRC arrangement

You should explain the arrangement to any trade association that asks about it. Send any applications to Business Profits with a copy of the association's:

• constitution

• rules, and

• accounts.

No deduction is to be made in computing the amount of the association’s trading income for any expenditure which the association incurs of a political nature even if it is one of the aims of the association. Expenditure on indirect internal taxes is dealt with at BIM46455.

S1298, S1299 Corporation Tax Act 2009, covered in BIM45000 onwards, apply to calculating the entertainment expenses of any association that has adopted the arrangement. Normally only certain expenses are allowed. These are for entertaining:

• staff of the association (but when staff entertainment is incidental to entertainment of others (disallowed under Section 1298) its cost is disallowed);

• representatives of the members, if the costs to the members themselves would be allowed under Section 1299.

Profits that are legally liable are excluded from the arrangement. This includes any sums chargeable to Corporation Tax as trading income, property income or capital gains or under the loan relationship rules. An association which has adopted the arrangement may, if its expenditure is greater than its income, claim relief in the same way as a company may claim for trading losses. That is, the deficiency is treated as if it were a loss in trade available for set-off under S37 Corporation Tax Act 2010 (CTA 2010) (see CTM04500 onwards) against other profits. If there is a deficiency that cannot be allowed under that Section, the association can claim to have it set off against surpluses, calculated according to paragraph 4 of the arrangement. This applies to the last six years as long as the deficiency has not been allowed already. The set-off should normally be made first against the surplus of the earliest of the last six years. Any balance can be carried forward under S45 CTA 2010 and set off against later surpluses. This is covered in CTM04000 onwards.

For the purpose of group relief (see CTM82000 onwards), any deficiency of the association which may be claimed under the arrangements as if it were a trading loss under Section 37 is available for group relief. Similarly, the surplus of an association that has adopted the arrangement should be regarded as part of its total profits against which group relief may be set off.

Refer any disagreement about assessments for associations who have adopted the arrangement to Business Profits before the appeal procedure under the arrangement is invoked or if they do not pay any tax owed.