HMRC guidance clarifies fit and proper persons test

It says anyone who has been involved in designing or overseeing tax-avoidance schemes using charities would be unlikly to pass the test

HM Revenue & Customs
HM Revenue & Customs

People who have been involved in designing or overseeing schemes to avoid tax using charities are likely to be prevented from taking up senior roles in charities, according to new guidance from HM Revenue & Customs.

HMRC has updated its guidance on the fit and proper persons test, which is used to prevent sham charities and fraudsters from abusing charitable tax reliefs.

It does this by requiring charity and community amateur sports club managers to be deemed "fit and proper" custodians of organisations. It applies to trustees, directors, CASC officials and other people who have general control and management of the running of organisations.

Changes to the new guidance, published this week, include a section saying that trustees removed or disqualified by the charity regulator will be unable to satisfy the fit and proper persons test.

The guidance says that people who have been actively involved in designing and/or promoting tax-avoidance schemes featuring charitable reliefs or which used charities will probably fail the fit and proper persons test.

But it also says that people who merely work for or are in the same organisation as someone involved in promoting tax-avoidance schemes will not fail the test.

The Charity Tax Group, which helped to develop the new declaration and guidance, said that the new document pointed out that tax advisers at firms where others had advocated controversial tax schemes would pass the fit and proper persons test.

A spokesman for the CTG said the group got involved in the new guidance to ensure it would avoid "cumbersome administrative processes for charities" and charity managers who had already signed the previous declaration would not need to repeat the process with the new version.

The guidance also provides a definition of tax avoidance as "an attempt to exploit legislation to gain a tax advantage that parliament never intended", as distinct from tax planning, which it says uses tax reliefs in a way parliament did intend.

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