HMRC consulted earlier in the year on the use of charities in tax avoidance schemes. HMRC has stated that it wishes to target only “extreme cases of abuse”, and allow normal charities and charitable giving to continue unaffected.
The draft legislation issued as part of the consultation is aimed at preventing the establishment of charities where securing a tax advantage is the main purposes, or one of the main purposes of the establishment of that charity. If this is found, HMRC would not recognise the charity for tax purposes from the outset. It does not currently affect the legislation regarding charitable giving.
The proposals have proved controversial in the charities world. Bodies such as STEP (Society of Trust and Estate Practitioners) have suggested that obtaining a tax advantage is part of the nature of charitable status, and legislation should focus on the abuse of those reliefs, and not on the establishment of charities per se. HMRC’s proposals suggest that it would have the power to refuse the registration of charities, leading to uncertainty and possibly a deterrent to those seeking to establish genuine charities. The results are due in the summer 2014.