Proposed rules to govern the relationship between charities and major donors are not fit for purpose and should be abandoned, according to some lawyers and accountants who have responded to a consultation about them.
'Tainted donor' rules, designed to ensure charity tax breaks are not used for tax avoidance, were announced in December to replace existing legislation about substantial donors. HM Revenue & Customs plans to introduce the rules in the Finance Bill that will follow the Budget at the end of March.
The new rules introduce a "purpose test" to indicate whether the donor intends to profit from the donation, and say that the donor will be liable for tax if the donation is for personal gain. The charity is liable under existing rules.
James Kessler, a barrister specialising in tax, has told a consultation on the rules that closed last week that the new law was "unfit for purpose".
Many innocent transactions would be caught unintentionally by the proposed rules, Kessler told Third Sector, and the problems they were intended to stop could be fought using other laws.
Bill Lewis, a tax consultant at law firm Bates Wells & Braithwaite, said the proposals in the consultation were a waste of time.
"These tainted donation rules are totally unnecessary and not fit for purpose," he said. "They are no improvement whatsoever on existing legislation."
He said HMRC had not produced a single example of a "tainted donation" that could not be dealt with by existing laws.
Kevin Russell, technical director of Stewardship, a Christian charity that donates money on behalf of 33,000 givers, said the new laws were "a significant improvement" on substantial donor legislation, but the charity was still concerned about several technical issues.
"For example, at the moment it looks like donations to restricted funds could be caught," he said. "It’s not HMRC’s intention to catch those donations, but it has to be clear to donors that that is the case.
"There are a number of technical issues to be ironed out, so it might be better to leave it until the next Finance Bill.
"However, that creates problems of its own because the existing laws aren’t satisfactory."
Nicola Evans, a senior associate at the law firm Bircham Dyson Bell, said charities were still working with HMRC to produce an effective model.
An HMRC spokesman said it was considering the points raised in the consultation.