The Charity Tax Group is hoping that the Chancellor, George Osborne, will announce in tomorrow’s Budget an exemption for charities from a new tax that it believes could make it impossible for charities to use trading subsidiaries.
The diverted profits tax, designed to tackle contrived arrangements by multinational companies to avoid paying tax in the UK, was announced by the government in last year’s Autumn Statement and is due to come into effect on 1 April.
But the CTG, which campaigns for a better deal for charities on tax, warned that because charities were not excluded from the measure they could be caught by it inadvertently.
The group said it believed that charities operating in group structures, such as parent charities with UK subsidiary companies or UK commercial companies with controlled charitable foundations, could be affected by the new rules.
John Hemming, chair of the CTG, said in a statement: "While the diverted profits tax was not designed to target charities, this is a classic example of charities being unwittingly penalised by wider tax legislation."
After discussions with HM Revenue & Customs, Hemming said, the CTG was "hopeful that our call for a specific charity exemption will be heeded. If it is not, there is danger that this tax will make it impossible for charities to use charity trading subsidiaries, which would be a real blow for the sector."
The CTG said the main point was whether Gift Aid or any other deductible gift could be caught by the legislation.
"It has been recognised by government that the use of reliefs as intended by government is not avoidance or abuse; however, this legislation is not conditional upon an avoidance motive being present – it merely requires a ‘mismatch’ causing a tax reduction even if it results from the legitimate operation of reliefs," Hemming’s statement said.
George Osborne, the Chancellor of the Exchequer, will make his Budget statement before the House of Commons tomorrow afternoon.