Thursday, 5 December 2013

Ministers will legislate to prevent tax relief for charities being used for tax avoidance


The government will introduce legislation to amend the definition of a charity to ensure that charities set up for tax-avoidance purposes cannot claim any relief, according to today’s Autumn Statement.

"The government will introduce legislation to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs," the document says.

It also says that the government will introduce "objective criteria" for identifying high-risk promoters of tax-avoidance schemes and will impose a stricter regime to govern them. Clients of high-risk promoters will also be required to identify themselves to HM Revenue & Customs.

The new definition for tax purposes has been introduced after the outcry over the Cup Trust, a charity that raised £176m in two years, claimed £46m in tax relief, but spent only £55,000 in that time on charitable activities.

John Hemming, chair of the Charity Tax Group, said that the sector must support any measures to make it more difficult to set up a charity for tax-avoidance purposes. But he said it should also ensure that it did not make it more difficult to operate a legitimate charity.

"We’ve been assured by HMRC that legitimate charities won’t be affected," he said. "This review must ensure it targets charities that have been set up by their ‘owners’ to secure a tax advantage.

"It will be a difficult process to create that definition, because it will have to be able to block something that wasn’t previously on HMRC’s radar. Often the charities won’t have done anything yet, so they need the flexibility to look on a case-by-case basis.

"We must accept that it’s very important to ensure that charity is not used as a vehicle for tax avoidance."

The document also confirms that a joint registration process will be set up to allow charities to register with the Charity Commission and HMRC at the same time.

HMRC confirmed in September that it was working on the process.

Margaret Hodge, chair of the Public Accounts Committee, described the existing system as "hopeless" at a PAC meeting in March.

Joint registration is intended to make it easier and cheaper for charities and the two organisations, but also to allow HMRC to check that charity administrators are "fit and proper persons" before a charity is registered.

Charlotte Ravenscroft, head of policy at the National Council for Voluntary Organisations, said the sector had been calling for a joint registration process for several years.

"It’s been long in the coming and it’s very welcome," she said.



  1. Excellent news! Far better than the blundering Peter Bone's half cocked ideas!

  2. It has become clear that some such legislation is needed, but it will be difficult to draft. The phrase “tax-avoidance purposes” implies a conscious intention on the part of the trustees and donors, but intentions are notoriously difficult to ascertain or prove. What if the stated intentions are clearly charitable, but the main practical effect is tax-avoidance? The legislation as described by the Chancellor sounds like a recipe for survival of the most mendacious. I fear that is what we already have.

    I suggest it would be better to draft the law in terms of the net benefits of the organisation’s activities, not in terms of its professed purposes. Purposes or intentions are much easier to fake than actual benefits. I suggest that an organisation should qualify for charitable status and tax concessions, including gift-aid, if the value of its public benefit is judged to outweigh the cost of the tax concessions.

    If a charity satisfies that criterion we should encourage it, and if it does not satisfy that criterion, then the public would be better off without it.

  3. Even Peter Bone's concept of assuming all churches are charitable would need monitoring. When asked what about groups that were dangerous outfits masquerading as churches he said 'Oh we'll need to regulate that'.

    Regarding Ian;s suggestion, you'd first have to define public benefit.

  4. UK statute law does not at the moment provide a definition of public benefit, and case law provides only illustrative examples.

    Public benefit could possibly be defined to include anything that makes the public or a substantial part of the public more healthy, more safe, more happy, more informed, more skilled, more self-sufficient, more creative, more free or better able to live in peace with their fellow humans. That definition could probably be expanded to include other similarly desirable effects. The definition of “the public” need not be limited to one particular country.

    I think the definition of “the public” should not include the organisation that calls itself a charity. A cult that benefits mainly its leaders would certainly not qualify, nor one that benefits only its own members.

    The value of the public benefit that a charity confers could be assessed in more than one way. For instance, its value could be roughly defined as the amount the public would be willing to pay for it if they could afford to and were well informed about it. The value of the benefit might also be assessed by the amount it costs the charity to provide it.