1. This Clause amends the provisions relating to Gift Aid donations to charity by companies. It brings donations made under a Deed of Covenant within the Gift Aid scheme. It also removes the requirement for companies to deduct and account for income tax on their donations and to give a certificate in respect of their donations.

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2. Subsection (1) provides for Section 339, Income and Corporation Taxes Act 1988 to be amended. That section provides for donations to charity (Gift Aid donations) that can qualify for deduction from profits as a charge on income under Section 338, Income and Corporation Taxes Act 1988.

3. Subsection (2) substitutes, in paragraph (a) of subsection (1) of Section 339, the words "a payment which, by reason of any provision of the Taxes Act except section 209(4), is to be regarded as a distribution; and". This prevents dividends paid by a company from coming within the meaning of a qualifying donation.

4. Subsection (3) provides that subsections (2), (3), (3A), (3F), (6), (7) and (8) of Section 339 shall cease to have effect. These changes remove:

• the requirement for a qualifying donation to be made by a UK-resident company

• the references to covenanted donations to charity,

• the requirement for companies to deduct income tax from their donations

• the requirement for companies to give a Gift Aid certificate with their donations

• the minimum limit of £250 for donations by close companies.

5. Subsection (4) substitutes, in subsection (3B)(b), the words "the limit imposed by subsection (3DA) below" for the words "two and a half per cent of the amount given after deducting tax under section 339(3)".

6. Subsection (5) inserts, after subsection (3D), new subsections (3DA), (3DB), (3DC) and (3DD).

7. New subsection (3DA) sets out the limits for the benefits, relative to the aggregate amount of donations, to be taken into account under subsection (3B)(b).

8. New subsection (3DB) provides for the annualising of the value of certain benefits and the amounts of certain payments for the purposes of the limits in new subsection (3DA). Where a benefit received in consequence of making a payment:

• is a right to receive benefits at intervals over a period of less than twelve months or

• relates to a period of less than twelve months or

• is one of a series of benefits received at intervals in consequence of making a series of payments at intervals of less than twelve months

the value of the benefit will be adjusted for the purposes of subsection (3C) (relevant value of benefits) and the amount of the payment will be adjusted for the purpose of subsection (3A).

9. New subsection (3DC) provides that, where a benefit, not one of a series, is received in consequence of making a payment, which is one of a series of payments made at intervals of less than twelve months, the amount of the payment will be adjusted for the purposes of subsection (3DA).

10. New subsection (3DD) provides the calculation for annualising the value of the benefit or the amount of the payment, when required by subsection (3DB) or (3DC).

11. Subsection (6) substitutes a new subsection (4) which provides that any gift of money to a charity by a company shall be treated as an annual payment in the hands of the charity. This will enable the charity to claim exemption from tax on the donation.

12. Subsection (7) substitutes a new subsection (7AA). New subsection (7AA) provides that where a company which is wholly owned by a charity makes a Gift Aid donation, it can claim that the donation, or any part of it, is to be treated as made in an earlier accounting period falling wholly or partly within the nine months prior to the date of the donation. A claim to have a payment treated as paid in an earlier accounting period must be made within two years from the end of the accounting period in which the payment is made, or such longer period as the Board of Inland Revenue may allow. This provision extends to Gift Aid donations a similar provision that applied to covenanted payments

13. Subsection (8) deletes from subsection (9) of Section 339, the words "in subsections (1) to (4) above includes". This reflects repeals within Section 339.

14. Subsection (9) substitutes, in Section 209(1), Income and Corporation Taxes Act 1988, the words "any express exceptions" for the words "section 339(6) and any other express exceptions". This reflects the repeal of Section 339(6).

15. Subsection (10) inserts into Section 338(2)(a), after "company", the words "or payments falling within paragraph (b) below". This ensures that companies claiming relief for Gift Aid donations get relief under Section 338(2)(b).

16. Subsection (11) brings the section into effect for Gift Aid donations made on or after 1 April 2000 and treats so much of an accounting date as falls before and after that date as separate accounting periods for the purposes of the new subsections (3DA) to (3DD).

17. For many years companies have been able to make payments under Deed of Covenant or the Gift Aid scheme so as to claim relief from Corporation Tax. They are required, however, to deduct basic rate tax from the donation and pay it over to the Inland Revenue. The charity can reclaim this tax.

18. Since 1997, charity subsidiary companies that make donations to their parent charity under a Deed of Covenant have been able to carry back late payments up to nine months into the earlier accounting period in which they fell due.