HM Revenue and Customs Consultation on Charity Taxation

At the end of last week HMRC published a consultation on a number of charity tax rules. They want to reduce non-compliance but maintain that the purpose and scope of the rules will remain the same.

The consultation deals with four areas of tax rules:

1. Preventing donors from benefitting financially from their donation;
2. Preventing abuse of charitable investment rules;
3. Closing a gap in non-charitable expenditure rules; and
4. Sanctioning charities which do not comply with tax return filing deadlines.

For each area the consultation sets out current rules and gives examples of arrangements that currently escape the rules. For example:

1. Under the tainted donation rules, a charity could receive a donation from a donor, who can claim higher rate tax relief. The charity can claim gift aid on the donation. But if the charity then loans the donation back to the donor, or the donor’s company, and the loan eventually written off, the current rules will not catch the arrangement.
2. Most forms of charity investments are exempt from tax. However, the broadly drafted rules have permitted a charity to invest in a property for its trustees to use as a holiday house. Although the charity does not benefit in any way from this transaction it is still not classed as non-charitable expenditure.

The consultation runs until 20 July 2023. Details of how to participate can be found here