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HMRC have published a guidance note setting out how they will apply the ‘fit and proper persons’ test for the purposes of the new management condition, introduced by FA 2010, Sch 7, which charities must now fulfil to qualify for UK charity tax reliefs.
Where a manager of a charity is found not to be a fit and proper person, a charity will not necessarily lose entitlement to the charity tax reliefs.
The taxman will be able to treat a charity as having met the management condition where either the manager has no ability to prejudice the charitable purposes of the charity, or it is just and reasonable to treat the charity as having met the management conditions throughout the period the manager has been in office.
The fit and proper persons test is concerned with ensuring that charities are not managed or controlled by individuals who present a heightened risk of prejudice to the charity’s tax position.
Factors that may lead to the Revenue deciding that a manager is not a fit and proper person include a history of tax fraud or other fraudulent behaviour, information pointing to a heightened risk of involvement in other fiscal impropriety, being barred from acting as a charity trustee by a charity regulator or court, or being disqualified from acting as a company director.
In considering the application of these and other criteria, HMRC will take account of the likely impact on the charity’s tax position. As a result the tests applied will vary, and will range from simple verification of the person’s name and address to detailed examination of the facts.
Where HMRC decide that, for a period, the management condition is not satisfied, they will have the discretion to decide whether or not the management condition is to be regarded as satisfied during that period.
The Revenue will not routinely ask existing charities to demonstrate that their managers are fit and proper persons. However, charity trustees will be expected to be able to show, if challenged, that they have given proper consideration to the suitability of people they appoint to positions of trust or influence in the charity.
The taxman will notify the charity if they are concerned that a manager may not be a fit and proper person. At the same time they will notify that person of the grounds for concern and give them the opportunity to challenge HMRC’s view.
The department will also, where appropriate, advise the charity what it must do, and by when, if the Revenue is to apply the discretion to treat the charity as having met the management conditions throughout the period of the person’s period in office.
See here for more details.
