New ‘fit and proper person' rules for charities introduced in the Budget could make claiming Gift Aid more difficult, charity tax experts have said.
HM Revenue & Customs has said it will review its records whenever a charity nominates a new person to submit tax returns or claim Gift Aid, to check whether that person has a history of exploiting tax reliefs for non-charitable purposes.
The checks will apply to new trustees and other officers of charities, and will vary depending on the position of the person concerned.
HMRC is also consulting on limiting the number of times charities can make Gift Aid claims each year.
John Conlan, a tax partner and charity specialist at accountants Baker Tilly, said the measures had been brought in primarily to counteract fraud.
"I'm told by HMRC that the main reason it's introduced this is that it is seeing more totally fictitious charities set up just to claim Gift Aid," he said.
"It seems that being registered with the Charity Commission no longer cuts any ice with the revenue. In the past it has used a ‘pay now, check later' approach."
Charity umbrella bodies are concerned that the new rules could involve much more red tape for charities.
John Low, chief executive of the Charities Aid Foundation, said: "In developing the detail of the process, additional bureaucracy and administration must be kept to a minimum.
"Changes to reduce the burden on HMRC or to protect against abuse must not be applied over-zealously so that they affect charitable activities."
Helen Donoghue, director of the Charity Tax Group, said: "The legislation and accompanying guidance must be as clear as possible.
"A charity must be able to know, without doubt, whether it qualifies for tax breaks at any time, and what the implications will be if it is not deemed to pass the ‘fit and proper person' test."
An HMRC spokesman said: "New regulations will affect only a very small percentage of existing charities. Most will notice no difference.
"The new rules will not affect how quickly we process Gift Aid payments."
Other key decisions in the 2010 Budget
- Social investment wholesale bank The bank will have a budget of up to £75m, as previously announced, and will use a ‘fund of funds' structure, in which money from the Government and private investors will be gathered in a single vehicle and then distributed to existing retail lenders.
- Consultation on VAT on shared services The Government will consult on whether it should continue to charge VAT on payments to organisations set up jointly by charities to provide back-office functions such as IT and HR. An EU directive allowing charities to be exempt from this VAT has not yet been implemented in the UK.
- Consultation on a potential community reinvestment act The Government will also consult on how to ensure lending and bank accounts are made available to all sections of the community. One option would be a levy on existing banks, distributed through third sector organisations such as community development finance institutions.