Professional Tax Consultancy

 Finance Act 2010 has been published and there is a few things that may catch the eye. For instance Section 37 and Schedule 7 introduced a new definition for tax purposes of charities and other organisations entitled to UK charity tax reliefs. The new definition requires a charity as an organisation must satisfy the 'management condition'. The management condition applies, with appropriate amendments, to Community Amateur Sports Clubs ('CASCs') as well as to charities.

 For a charity to satisfy the management condition its managers must be fit and proper persons to be managers of the organisation. There is no definition in the legislation of a 'fit and proper person'. Therefore, HMRC has issued some guidance which explains how they will apply this test to those who have the general control and management of the administration of the charity. This guidance is set out at http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp-persons-test.htm.

 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. HMRC 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 the circumstances are such that it is just and reasonable to treat the charity as having met the management conditions throughout the period the manager has been in office.

It is suggested that a declaration is obtained for any new people that may be affected by this. It may be worthwhile to actually do this for all existing managers, trustees and directors so that records are kept for any questions raised at a later date. HMRC have provided a template for doing this. http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/model-dec-ff-persons.pdf.

It is therefore important that charities review their position to ensure that they do not lose their charitable status. If they do the tax consequences could be catastrophic for the charity. As usual, although it is not clear, it is always possible that HMRC may decide to go back with the change in the status which could make matters even worse.