Will one registration fit all?

Ann Phillips of the Charity Law Association says a joint system with HMRC could hinder the development of charitable purposes

Ann Phillips
Ann Phillips

In his review of the Charities Act 2006, Trusted and Independent: Giving Charity Back to Charities, Lord Hodgson commended the relationship between the Charity Commission and HM Revenue & Customs. But he said that one key aspect of the relationship created a challenge for charities - the requirement to register separately with each regulator.

Hodgson argued in favour of bringing together the commission and HMRC's registration processes. "The two similar but nonetheless separate and in some ways different processes impose an unnecessary burden on charities and should be addressed," he said in his review. "It surely cannot be impossible for a joint registration form that meets both organisations' requirements to be devised."

Hodgson said that joint registration would streamline processes between the commission and HMRC and encourage information-sharing, which has come to the fore since the Cup Trust tax-avoidance case emerged. The commission has since welcomed the proposals and says it is in discussions with HMRC, although no timescale for implementation has been set.

However, charity lawyers have concerns about joint registration. They warn that it could undermine the commission, especially if HMRC's fit and proper persons test is used to determine charitable status. They have also raised concerns that joint registration would take longer.

Under the existing system, all charities with incomes of more than £5,000 are legally obliged to register with the commission. Separate from commission registration, charities - including those with incomes of less than £5,000 - can apply to be recognised by HMRC for tax purposes.

Speaking to Third Sector earlier this year, Hodgson said that any single joint registration process should incorporate HMRC's fit and proper persons test, which allows the regulator to deny tax relief to a charity if it feels that a senior employee or trustee is a fraud risk.

However, Ann Phillips, chair of the Charity Law Association and a partner at Stone King solicitors, says that whether or not an organisation is a charity should be determined by the charity's constitution and not by HMRC's fit and proper persons test.

"What is or isn't a charity is a matter of law, primarily determined with reference to the constitution of the organisation," says Phillips. "The fit and proper persons requirement, which is part of HMRC's test of recognition for tax purposes, is not itself a means to determine charitable status in law." Phillips also warns that a system of joint registration could hinder the development of charitable purposes.

Mark Ashton, a solicitor specialising in charities and education at Gordons LLP solicitors, says a potential concern about joint registration is that the involvement of HMRC could actually slow down the process. "HMRC can be very slow," he says. "That's one of the worries - that it would delay the registration process, which might be time-sensitive because of funding streams."

Ashton says there is also potential for joint registration to spark concerns about the commission's autonomy in its role of determining whether institutions are charitable. "Some people might think that joint registration undermines the commission," he says. "Many trustees hold the commission in high regard and I would worry about anything that might undermine the commission in that respect."

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