Lawyers issue warning about HM Revenue & Customs' 'fit and proper' test

It gives tax officials too much power over trustees, they say

A new law saying that trustees must be vetted by HM Revenue & Customs gives tax officials too much power over charities, lawyers have warned.

The measure, introduced in the Finance Act earlier this month, is designed to ensure that tax relief is not given to bogus charities. It gives HMRC the power to carry out a 'fit and proper persons' 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.

But lawyers said the wording of the legislation was too loose, and people at legitimate charities might be judged not to be 'fit and proper'.

Sam Macdonald, a partner in the charities team at law firm Farrer & Co, said virtually anyone in the sector could fall foul of the new rules.

"Charities will never really know whether they are entitled to tax relief or not," he said. "HMRC has said 'you'll have to trust us', but that's not a reassuring basis on which to continue."

Bill Lewis, a tax consultant at law firm Bates Wells & Braithwaite, said HMRC should have consulted on the legislation before introducing it. "This is more unnecessary paperwork, and penalises only the innocent. The red tape this produces will have no effect on fraudsters, but it will cause trouble for law-abiding trustees."

Simon Weil, a partner at specialist charity law firm Bircham Dyson Bell, said: "This is dangerously subjective legislation. I think the sector needs to fight for its independence."

A spokesman for HMRC said that if charities employed someone who was not a fit and proper person, HMRC would not deny tax relief for the period when that person was employed, so long as "the integrity of its charitable expenditure remains intact".

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