HM Revenue & Customs has said its new powers to carry out checks on charities are needed because the Charity Commission and the Office of the Scottish Charity Regulator are not responsible for fraud and tax avoidance.
"HMRC has already identified fraud by individuals and charities registered by the commission and OSCR, which suggests that the charity regulators' checks are clearly not sufficient for effective tax administration," HMRC said in a letter to charity law firm Bates Wells & Braithwaite.
The firm has argued that the 'fit and proper persons' test introduced by the Finance Act in April should not apply to UK charities. It had told HMRC that the commission and the OSCR were the right authorities to decide whether charity trustees were fit to carry out their responsibilities, and that HMRC should accept their judgements.
HMRC's response says it will press ahead with the 'fit and proper persons' test, which allows it to deny UK tax relief to any charity in the European Union if it believes a trustee or senior employee is not trustworthy.
The new power was introduced after it was decided to extend tax relief on donations to charities in other EU countries. Charity lawyers, umbrella bodies and members of the House of Lords are campaigning to have the legislation amended so as not to cover UK charities.
Bill Lewis, a tax consultant at Bates Wells, said: "This has been introduced in a rush without enough thought. I wonder if they had any meaningful discussion at all with the commission beforehand. They haven't even tested whether the problem can be handled by existing laws."
Ralph Michell, head of policy at chief executives body Acevo, said: "The idea that the third sector is riddled with fraudsters is totally ridiculous. We don't need both HMRC and the Charity Commission tackling this. The idea that HMRC has the resources itself to sort out fraud in the sector seems remarkable."
A commission spokeswoman said it took fraud seriously and had clear rules for governance and financial controls. "The commission and HMRC have different regulatory roles and perspectives, but we work closely to prevent the fraudulent abuse of charities," she said.
An OSCR spokesman said it had its own anti-fraud strategy, but worked with HMRC on regulation.
