Campaign against 'fit and proper person' test

Bates Wells & Braithwaite says legislation will increase bureaucracy and penalise legitimate charities

A leading charity law firm is planning a campaign to win UK charities an exemption from the new ‘fit and proper person' test.

The Finance Act 2010 gives HM Revenue & Customs the power to carry out the test every time a charity hires a new trustee or senior manager. If a trustee fails to pass the test, the charity can be denied tax relief.

The legislation follows a European Court of Justice a ruling that found Hein Persche, a German donor, should receive tax relief on a donation to a Portuguese charity.

EU member states are now in the process of implementing legislation to ensure all charities that receive tax relief are legitimate.

Rosamund McCarthy, a partner at Bates Wells & Braithwaite, said the new test should not apply to UK charities because the Charity Commission already provided adequate regulation.

"By choosing to apply these rules to UK charities, HMRC is effectively saying that it doesn't trust the Charity Commission, and that UK charities will have to apply for tax exempt status all over again," said McCarthy.

She said the new rules contained no definition of ‘fit and proper', meaning that charities could never be absolutely sure if they qualified for tax relief.

The new test would also cause an increase in bureaucracy by requiring charities to fill out a seven-page form and list up to 37 separate pieces of information every time they appointed a new trustee or senior manager, she said.

"We will be engaging in some serious and concerted lobbying about this, and we will be encouraging all our contacts working in the sector to do the same," she said.

Helen Donoghue, director of the Charity Tax Group, said her organisation had formed a working party to address the new rules.

She said lawyers, accountants and umbrella bodies had recently fought a long campaign to amend substantial donor legislation, a complex piece of anti-avoidance legislation that could have penalised many charities without their knowledge.

"This has the potential to cause the same scale of problems for the sector," she said. "We want to make sure that doesn't happen."

An HMRC spokesman said: "HMRC has consulted with a number of stakeholders to minimise the administrative burden on charities of the new rules.

"Stakeholders consulted by HMRC have understood the balance needed between protecting the exchequer and supporting the sector. 

"Existing charities need do nothing unless they appoint a new person to submit tax returns or claim repayments of tax on behalf of the charity."


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