§ Sir John Cope
In the past the Inland Revenue has accepted that where a subsidiary company operates a lottery on behalf of a charity, the income from the lottery belonged to the subsidiary company for tax purposes. The company could relieve the income from tax by passing it to the charity under a deed of covenant.
The Inland Revenue has received legal advice that this treatment is incorrect where the lottery is a society lottery organised under section 5 of the Lotteries and Amusements Act 1976. Where a subsidiary company promotes a society lottery on behalf of the charity, but the charity itself is registered as the society under the Act, the view is that the income from the lottery belongs to the charity, not the subsidary company, and the charity is therefore taxable on the income.
In order to prevent charities from being disadvantaged by this change of view of the law the Government have decided to introduce legislation in the next Finance Bill to exempt charities from tax on income from society lotteries provided the income is applied solely to the purposes of the charity.
Income from small lotteries under section 3 of the Lotteries and Amusements Act 1976 will also be exempted.
Subject to approval by Parliament the exemption will apply, for income tax, for tax years after 1994–95 and, for companies, for accounting periods beginning after 31 March 1994. In anticipation of the proposed legislation the Inland Revenue will give charities relief from tax on a concessional basis for lottery income arising in earlier periods where the tax liability has not yet been settled.