Rosamund McCarthy: The taxman's new powers can destroy reputations and breach human rights

HMRC's 'fit and proper persons' test has huge implications for civil liberties, says our columnist

Rosamund McCarthy
Rosamund McCarthy

You might already be weary of the uproar concerning the new 'fit and proper persons' test, which has been covered extensively by Third Sector. And HMRC's recent assurances have done nothing to allay concerns.

Are you a charity trustee, cheque signatory or senior financial manager? If so, please be warned that if HMRC finds that you are not 'fit and proper', you will have no formal right of appeal. 'Fit and proper' is not defined in law, but HMRC's guidance points to factors such as fraud or information indicating a heightened risk of financial impropriety. This is intended to be reassuring, but the guidance can be amended at any time.

Won't your charity come to your rescue? The answer is: probably not. The charity is permitted to appeal to a tribunal against HMRC's determination, but might not in practice feel able to do so because, by making an appeal, the trustees would be using the charity's resources to clear one individual's name.

If a charity's manager is found not to be 'fit and proper', the result might be the withdrawal of all tax reliefs. HMRC's guidance suggests that the individual's removal might be the price to pay to retain the tax relief. So when HMRC says that an employee fails the 'fit and proper persons' test, the charity will almost certainly have to sack the employee.

HMRC says that the individual will have the opportunity to challenge HMRC's concerns, but this does not constitute any proper right to appeal to an independent tribunal. Your name and reputation will be ruined. You will, in effect, be disqualified from acting as a trustee or obtaining employment in the charity sector. How many directors of companies are disqualified in this fashion?

According to HMRC, this unqualified power is required to prevent fraud, but it has huge implications for civil liberties. In the name of fighting a war on charity fraud, it gives HMRC discretion to decide who can be a charity manager. It's an over-reaction similar to the worst New Labour responses to terrorism. I agree with James Kessler QC that the new test is the tax equivalent of the discredited 'sus' laws. Power to impose tax or disapply an exemption by suspicion alone is as objectionable as power to search and arrest by suspicion alone. We have the dying days of the Labour government to blame for this legislation. Let's hope the coalition government sees sense. Combating fraud should not be at the expense of human rights.

Rosamund McCarthy is a partner in law firm Bates Wells & Braithwaite and writes in a personal capacity

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