The Charity Law Association on George's less than marvellous medicine

Plus: Loans by close companies, HMRC's policy on Gift Aid reclaims is clarified

George Osborne
George Osborne

George’s less than marvellous medicine

There was little in the rag-bag of charity-specific announcements in the 2015 Autumn Statement and spending review to excite charity lawyers. While freezing the Charity Commission’s funding until 2020 was preferable to widely expected cuts, the commission warned that there was little more it could do to reduce costs without its regulatory work being affected.

The government confirmed it would review how the Gift Aid Small Donations Scheme was operating, and published a call for evidence on 9 December (which closes on 2 March 2016). It also confirmed it would report on its review of business rates at the 2016 Budget, but provided no reassurance that charity business rates relief would be retained unaltered.

Loans by close companies

A clause of the Finance Bill 2016, published on 9 December 2015, will exempt from the charge to corporation tax (in section 455 of the Corporation Tax Act 2010) loans or advances made on or after 25 November 2015 by close companies to trustees (corporate or individual) of charitable trusts, where the loan or advance is applied wholly to the charitable purposes of the trust. This will prevent the rules on loans to participators inadvertently biting where a non-charitable subsidiary company lends funds to the charity trustees of its parent charitable trust until the amount of the profits that are available for the company to donate to the charity have been determined.

Charities can refrain from accounting for any tax charge that arises between 25 November 2015 and the granting of royal assent to the Finance Bill 2016. However, should the measure not be approved by parliament, they will be liable for the charge under the existing law.

HMRC’s policy on Gift Aid reclaims is clarified

In a written response given to the House of Commons on 16 November 2015, the Exchequer Secretary to the Treasury, Damian Hinds, confirmed HMRC’s policy for reclaiming tax where a taxpayer has made a donation to a charity under the Gift Aid scheme but ends the year having paid insufficient tax to cover the Gift Aid claimed on all their donations in a tax year.

In practice, HMRC may invite the charity to make good any shortfall on behalf of its donors. However, the charity is not legally obliged to repay any over-claimed Gift Aid. Donors remain responsible for ensuring that they have paid sufficient tax to cover any Gift Aid reclaimed on their donations and for repaying any over-claim.

This clarification follows HMRC’s recent publication of new Gift Aid declarations and guidance on retail Gift Aid – charities and their shops are now required to give a clear explanation of their donor’s responsibility to meet any shortfall if they pay less tax than the Gift Aid that is claimed on their donations.

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