The Charity Tax Group has said it is relieved that charities have been granted an exemption from a new tax that it feared 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 explicitly 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.
In a statement made yesterday, the CTG said that the Finance Bill 2015, published on Tuesday, confirmed that charities would receive an exemption from the tax.
John Hemming, chair of the CTG, said: "We are very pleased that that the government has listened to our concerns about the diverted profits tax and has built in a specific legislative exclusion for payments to charities.
"While this tax was not designed to target charities, this is a classic example of charities being unwittingly penalised by wider tax legislation. If there had not been a change, there was a danger that this tax would have made it impossible for charities to use charity trading subsidiaries."