Corporation tax – Registered social landlord – Charitable purposes – Sections 505 and 506 of Income and Corporation Taxes Act 1988 – Whether appellant registered social landlord entitled to charitable exemption from corporation tax for period prior to registration as charity – Whether objects of appellant wholly charitable where memorandum and articles requiring those objects to be carried out for benefit of the community – Appeal dismissed
The appellant was a limited company formed in 2001 and registered in 2002 as a social landlord within Part I of the Housing Act 1996. As set out in its memorandum and articles of association, its objects were the business of providing housing, accommodation, assistance to help house people, associated facilities and amenities and “any other object that can be carried out by a company registered as a social landlord with the Housing Corporation”, for the benefit of the community; it was not to trade for profit. In 2002, St Helens Metropolitan Borough Council sold some of its housing stock to the appellant under the government’s large-scale voluntary transfer programme. A development works agreement provided for the council to pay an agreed sum to the respondent to carry out certain works of repair and refurbishment to the housing stock. In 2004, the appellant was registered as a charity.
The respondents assessed the appellant for corporation tax in the sum of £6m for two accounting periods from 2002 to 2004, prior to the appellant’s registration as a charity. They took the view that the appellant was running two businesses during the relevant periods, a Schedule A business concerned with the provision of housing and a distinct Schedule D business concerned with the provision of works to the council under the development works agreement. That meant that the appellant could not offset the refurbishment costs against the Schedule A profits, with the result that those profits were liable to corporation tax for the relevant accounting periods in the absence of any charitable exemption.
On appeal from that decision, the appellant contended that it had charitable status during the relevant period notwithstanding that it was not registered as a charity and that it was entitled to exemption from corporation tax under sections 505 and 506 of the Income and Corporation Taxes Act 1988. That argument was rejected by the first-tier tribunal and the Upper Tribunal; both held that, on a proper construction of the appellant’s memorandum and articles, it was able to confer private benefit on individual tenants, with the result that it was not established for exclusively charitable purposes: see [2011] UKUT 271 (TCC); [2012] PLSCS 201. The appellant appealed.
Held: The appeal was dismissed.
(1) For activities to qualify as charitable, they not only had to be undertaken for the public benefit or for the benefit of the community, but had also to be of a kind that fell within the spirit and intendment of the preamble to the Statute of Charitable Uses 1601 (Statute of Elizabeth I): Williams Trustees v Inland Revenue Commissioners [1947] AC 447 and Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73 applied. Moreover, any element of benefit to individuals had to be subordinate or ancillary to the public benefit. Although many charities provided direct benefits to individuals, that was justified on the ground that it was desirable, for the public benefit, that such provision should be made for those in particular need: R (on the application of Independent Schools Council) v Charity Commission [2011] UKUT 421 (TCC); [2012] 2 WLR 100 applied. Whether any benefit obtained by an individual as a result of carrying out the objects of a body was subordinate to the public benefit would depend on the nature of the objects, the terms of the constituent document, and the nature of the benefits accruing from carrying out the objects: Scottish Burial Reform & Cremation Society Ltd v Glasgow City Corporation [1968] AC 138 and Inland Revenue Commissioners v Oldham Training and Enterprise Council [1996] STC 1218 considered.
(2) The objects set out directly or by reference in the appellant’s memorandum and articles were all independent of each other and each could be pursued for its own sake. Those objects were not merely ancillary to a principal purpose of managing and providing housing to tenants for the benefit of the council. The appellant’s additional objects covered by section 2(4) of the 1996 Act, including the acquisition of houses to be disposed of on sale, shared ownership arrangements, the management of let property and the provision of services to owners or occupiers of houses, were not, on their face, limited to activities consistent only with charitable status. The express requirement to pursue those objects “for the benefit of the community” was not sufficient to make them so. Whether an express requirement to pursue certain objects “for the benefit of the community” excluded any non-subordinate individual benefit would depend on the facts and merits of the individual case. In the instant case, it did not. It permitted the execution of an object that was primarily for individual benefit, provided it was also in some way for the benefit of the community, even if that benefit was not the predominant factor as compared with benefit to an individual. Moreover, even if it imposed some more substantial limitation, it did not follow that the appellant’s objects fell within the spirit and intendment of the preamble. For example, helping a non-charitable housing association under section 2(4)(f) of the 1996 Act could be for the benefit of the community but would not be charitable.
(3) Even the appellant’s objects relating to the provision of housing were not exclusively charitable. Although the provision of housing accommodation was potentially for the public benefit, the decided cases proceeded on the basis that the provision of housing was charitable only if it was provided by way of the relief of need, whether due to poverty, to old age or to other relevant circumstances: Re James [1932] 2 Ch 25 and Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney-General [1983] Ch 159 applied. The provision of housing accommodation, otherwise than for those in some relevant charitable need, was not a purpose within the spirit and intendment of the preamble, either directly or by analogy with any other purpose that had been so recognised. Further, the private benefit to those who occupied the appellant’s accommodation was not merely incidental or subsidiary to the public benefit afforded by the existence of the housing stock. It was a benefit for its own sake, not incompatible with benefit to the community, but not subordinate to it. The provision of accommodation by way of housing conferred an especially significant benefit on the person or persons so housed, going beyond the degree of benefit that individuals could obtain from charitable operations that were justified on the ground of general public utility. That would be so only if the direct benefit provided were justified as charitable on the ground that it met a relevant need of the class eligible to occupy it. The appellant’s housing allocation policy was not limited to those in particular need. It followed that the appellant’s function of providing housing for tenants was not in itself charitable.
Christopher McCall QC and Matthew Smith (instructed by McGrigors LLP) appeared for the appellant; William Henderson (instructed by HMRC Solicitor’s Office) appeared for the respondents; Peter Crampin QC (instructed by the Treasury Solicitor) appeared for the Attorney-General, as intervener.
Sally Dobson, barrister
