Charities and tax avoidance: no change to charity definition

It was announced in the Autumn Statement 2013 that the government intended to introduce legislation to prevent charities being set up to avoid tax. The legislation was expected to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs. The legislation was expected to be introduced in the Finance Bill 2014.

Following the announcement in the Autumn Statement the government developed two approaches to implement the proposed legislation. However, the feedback received during the consultation process confirmed that the two approaches would have a “disproportionate and unacceptable effect upon the charity sector and legitimate donors”. Due to the possible damage to charities that were not seeking to avoid tax it has been decided that a change in the law is not necessary at this stage and the government has decided not to include the proposed legislation in the Finance Bill 2014. 

HMRC do, of course, still have a number of tools available to them to tackle tax avoidance, such as the General Anti-Abuse Rule and the fit and proper person test for charities, and will continue to review the situation regarding the use of charities and tax avoidance. If more controls are found to be needed, these may be introduced at a later date. 

For more information, please contact your usual Moore Stephens adviser.


Tom Ward

Related links

Charities & not-for-profit
Business tax