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The government is consulting on how to clamp down on charities being set up to avoid tax. Last year’s autumn statement included the move to bring forward rules aimed at keeping charities from being abused by parties seeking a tax advantage
HMRC already have the legislative means to challenge certain schemes, but Exchequer officials hope to shape more laws to deter a greater number of tax dodgers.
The government is consulting on how to clamp down on charities being set up to avoid tax. Last year’s autumn statement included the move to bring forward rules aimed at keeping charities from being abused by parties seeking a tax advantage
HMRC already have the legislative means to challenge certain schemes, but Exchequer officials hope to shape more laws to deter a greater number of tax dodgers.
Charity sector representatives have highlighted the importance of striking the right balance between protecting the reputation of charitable reliefs and not putting off innocent potential donors.
Two versions of draft legislation are available for comment by email no later than 11 April.
Both rely on establishing a motive of securing a tax advantage in the context of the arrangements under which the charity was established.
The approach in the first document relies on preventing the Revenue recognising a charity if one of the main purposes or results of its establishment is to secure a tax advantage. The test is geared towards tax advantage as in CTA 2010, s 1139, rather than tax avoidance.
The second draft narrows the purpose test from one of several to a single main purpose, reducing the likelihood of legitimate charities being affected because it would be clear that the main purpose of a legitimate charity is philanthropy rather than gaining a tax advantage.
