'Tainted' donor rules in Finance Bill are an improvement, say experts

Measures to stop charity tax breaks being used for tax avoidance have been amended since the draft was published in December

Legal expert Nicola Evans comments on the story
Legal expert Nicola Evans comments on the story

New 'tainted donor' rules in the Finance Bill, designed to prevent fraudulent donations to charity, will solve many of the problems highlighted in earlier draft legislation, according to some charity legal and financial experts.

The Finance Bill was introduced to parliament last week and includes the new rules, designed to improve the existing legislation relating to 'substantial donors'.

A draft of the rules, intended to ensure charity tax breaks are not used for tax avoidance, were announced in December to replace the existing legislation.

The draft rules introduced a 'purpose test' to indicate whether a donor intends to profit from a donation, and say donors are liable for tax only if they make a donation in order to derive a personal gain.

The draft rules were criticised for potentially catching many innocent transactions, such as a payments into restricted funds. But experts said the wording of the new rules under the Finance Bill was a significant improvement.

Kevin Russell, technical director of Stewardship, a Christian charity that donates money on behalf of 33,000 givers, said the new rules were "a great relief".

"It’s difficult to focus on those who are doing something wrong while getting it perfect for everyone else," he said. "This gets much closer."

Nicola Evans, a senior associate at the law firm Bircham Dyson Bell, said the new rules were much improved. "It removes many of the problems that previously existed around perfectly legitimate arrangements," she said.

But Bill Lewis, a tax expert at the law firm Bates Wells & Braithwaite, said he had yet to see evidence the new rules were necessary at all.

"These rules are better, but they aren’t needed," he said. "Existing legislation would do perfectly well to solve the problems that HM Revenue & Customs is worried about."

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