Sector presses for change of heart on tax threat

Charities are hopeful that HM Revenue & Customs will reconsider its threat to tax them on a form of bond trading known as 'bond washing'.

If HMRC does not change its mind, charities could face a tax bill of millions. Charities were warned in December that legislation from the 1950s might be used to tax interest and dividends from bond washing - the process of selling a share before a dividend payment is due and then buying it back at a cheaper price.

Sector experts argue that the legislation is not relevant today because charities use multiple fund managers who make numerous transactions on the stock market. A city source told Third Sector that HMRC became aware that charities could be caught by the legislation after a routine audit of the Wellcome Trust.

"We have had a discussion with HMRC to talk about the problem, and we have identified how difficult the issue is for charities," said Helen Donoghue, director of the Charities' Tax Reform Group. "The ball is now in its court."

A spokeswoman for HMRC said: "Charities have overlooked the potential for liabilities in this area."

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