Planned new definition of charity for tax purposes needs radical changes
A planned new definition of charity for tax purposes, intended to prevent charities being set up to avoid tax, should be radically altered to take into account existing legislation, the Charity Tax Group’s annual conference heard on Monday.
Earlier this year HM Revenue & Customs proposed measures to make it harder for charities to be set up in order to avoid tax, and published a discussion paper proposing a new condition that charities must satisfy before they are entitled to claim tax relief.
Two alternative versions of this “establishment condition” were proposed. One would say a charity could not claim tax relief if its main purpose was to obtain a tax advantage. The other is broader and would apply the rule if one of the charity’s purposes was a tax advantage.
Neil Cohen, a professional support lawyer at Trowers & Hamlin, told the conference, at the Wellcome Trust in London, that he “would be very surprised” if a test of some form was not introduced because HMRC had taken too much criticism over its handling of the Cup Trust, a charity established in order to avoid up to £100m in tax.