Campaign picks up against 'fit and proper persons' test

Government comes under pressure to cut red tape

The senior charity lawyer Lord Phillips of Sudbury is marshalling an attempt to persuade the government to exempt UK charities from recent legislation that gives HM Revenue & Customs powers to prevent charities receiving tax benefits.

Phillips told Third Sector that the ‘fit and  proper persons' test should not apply to UK charities because it would give HMRC too much power and lead to a large increase in unnecessary red tape.

"Because this legislation was introduced in a hurry in the period between the Budget and the election, there was next to no consultation with the sector and next to no scrutiny in Parliament," he said.

"I accept there is a need for regulation to prevent tax-dodgers setting up fake charities in under-regulated jurisdictions, but this doesn't need to apply to charities that are already well regulated by the Charity Commission."

The 'fit and proper persons' test was introduced in the last Finance Act in response to a ruling in the European Court of Justice that donations to charities in other EU member states should receive the same tax relief as domestic donations.

An HMRC spokeswoman said that without the legislation the Exchequer would have been paying out an extra £500m a year by 2018 – 90 per cent of it fraudulently claimed. The measures would reduce the cost to between £150m and £200m, thus preventing £300m of fraud, she said.

Phillips said he did not anticipate fundamental objections from HMRC to an exemption for UK charities because he did not believe fraud in UK charities was its main concern.

He said any change must be seen not to give preferential treatment to UK charities, but one way of doing this would be to specify that the law should not apply in any EU state with a sufficiently effective regulatory regime.

In a letter to the sector before the election, the Conservatives pledged to cut the bureaucracy surrounding Gift Aid. A spokesman for the Cabinet Office said it was not the right time for ministers to comment on the ‘fit and proper persons' test.

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