Clampdown on abuse of charity tax reliefs

Mathew Little

The Budget included a clampdown on the abuse of tax reliefs intended for charity donors.

The anti-tax avoidance measures include restrictions on high-value 'donors' who lend money to charities in order to reap tax benefits and firms that receive benefits in return for donations.

Mark Nellthorp, head of charities at HM Revenue & Customs, said: "We are concerned at the rapid growth of tax avoidance involving the abuse of charitable reliefs and the effect this could have on the sector's reputation.

The measures are intended to protect the viability of existing charitable reliefs and will not have any impact on genuine charitable activity."

Anti-avoidance measures already in place for 'close companies' - those run by five or fewer people or by the directors - will be extended to all companies. These are intended to prevent donors receiving large benefits in return for donations.

Restrictions on tax reliefs where a charity incurs non-charitable expenditure have also been introduced.

In another move, any person or company donating £25,000 in a 12-month period or £100,000 over six years will be classified as a 'substantial donor' for tax purposes. This is to stop donors borrowing money back at a cheap rate after a donation has qualified for tax reliefs.

A spokeswoman for the Charity Commission said the abuse of tax reliefs was "comparatively rare". It usually involved people closely associated with a charity and who did not have to disclose their donations, she added.

David Membrey, chief executive of the Charity Finance Directors' Group, said it backed the measures. "It is essential the charity brand is not tainted by association with tax-avoidance schemes," he said.

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