HMRC's proposed guidelines could make charities responsible for spotting fraud, writes Helen Warrell.
There could soon be a surge in the growing workload of charity trustees and finance managers if HM Revenue & Customs succeeds in pushing through proposed guidelines that appear to put the onus on charities to detect donations that might be part of a tax avoidance scam.
A group of finance directors is working on responses to the draft document, which warns charities not to be tempted by offers that are unusual or especially lucrative. It says sternly that there are "significant risks" in accepting suspicious donations, which might, if fraudulent, bring "large unexpected costs" for the charity.
The draft guidelines have also raised eyebrows because they appear to discourage legal tax avoidance, which could conflict with charities' obligation to maximise their income.
No one denies there is potential for tax reliefs introduced to promote charitable giving to be abused by individuals for personal gain. It was reported in July that HMRC was conducting raids on organisations thought to be involved in a scam in which shares were floated at fictitious prices on the Alternative Investment Market and gifted to a charity in order to receive an inflated tax advantage.
The Government is clearly trying to clamp down on any such abuses. The Chancellor's 2006 Budget, for example, brought in a variety of measures to minimise misuse of the Gift Aid scheme.
These included restrictions on the amount of benefit companies can receive from tax-effective giving and barriers to prevent people making large donations to charity that are then reclaimed once the tax relief has been paid. There are also limitations on the tax relief charities themselves can claim if charitable funds are being used for non-charitable purposes.
But some charities have found HMRC's draft guidelines flippant and patronising and feel the document implies trustees and their advisers have little professional knowledge. One section, called 'I'm just a trustee who can't say no', says "no charity is under any obligation to accept a donation that may carry risks". The document warns about people who "make their money by peddling schemes that exploit relief for charities in ways for which they were not intended".
Rosie Chapman, director of policy and strategy at the Charity Commission, recommends that charities should not over-react. "To be fair to the draft guidelines, they do make it clear that there is no difficulty over straightforward donations that have no strings attached," she says. "I think there is some merit in what HMRC is doing, although our starting point would be different because we have a different remit."
Asked whether some of the wording could be improved, Chapman says: "I'm sure that HMRC will listen to what the sector is saying, adjust its guidance accordingly and produce something that is helpful to charities."
Others in the sector are not so sure. Anna Josse, founder of Prism, a charity that helps to monitor and administer charitable giving, warns that charities could lose out if they are frightened into being over-cautious.
"I think HMRC's suggestions are unrealistic, because charities don't know enough about the rules of share-giving and therefore get nervous," says Josse. "Charities we have come into contact with worry about whether they are right to accept shares, and fear they could be accused of involvement in tax evasion."
In Josse's experience, the trustees' fiduciary agreement means they have a duty to accept share gifts and would be wrong not to do so. This is not to say there is no need for guidance, she says: "The Government should present these warnings to charities in a different way. There needs to be another effort, along the lines of the Giving Campaign, to straighten this out."
Les Jones, executive director of the Charities Consortium, says the draft guidelines are "too heavy" and put too much onus on charities to be wary of the consequences of scams. "What would charities have to do to prove donations are genuine?" Jones asks.
Helen Donoghue, director of the Charities' Tax Reform Group, fears the guidelines not only warn charities about external scams, such as fraudulent donations, but also discourage legal tax avoidance or tax planning.
"We sought clarification from HMRC officials on whether the document would cover tax planning by charities, and they have confirmed that it will do so," she says. "It is a requirement of charity law that trustees take measures to minimise the tax paid by their charity. We are not aware of any other taxpayers, either corporate or individual, who are being asked to refrain from legitimate tax planning, and we cannot believe it is right that only charities should be put in this position."