On 27 April 2023, HMRC published a Consultation on charity tax compliance to:
“examine … charity taxation rules to help tackle non-compliance and protect the integrity of the charity sector without changing the overall purpose of the reliefs … [and] … ensure the rules continue to be fit for purpose.”
In the consultation document, HMRC stated that it wanted to explore reasonable and proportionate changes where tax relief rules do not work as intended. It added that “Any changes would not detract from the overall generosity of the reliefs or be intended to catch out legitimate charities.”
In a joint response, supported by ACEVO, CAF, CFG, CRA, CIOF, NCVO and SCVO, the Charity Tax Group has urged HMRC to exercise caution to avoid unintended consequences for the majority of law abiding charities, as well as a possible adverse risk to donor generosity brought about by tax uncertainty. In our response:
- We have urged HMRC to tweak the Tainted Charity Donations rules, rather than replace them, or adopt more radical change.
- Although recognising the scope for abuse within the Approved Charitable Investment rules, we have argued for a more focused approach, only changing the rules within the 11 types of approved investments that need to be changed, rather than adopting a blanket approach.
- We questioned the logic of changing the Non-Charitable Expenditure rules in the way proposed by HMRC pointing to the risk that HMRC may claw back tax relief that was not granted in the first place! We also resist the idea that the claw back rules be extended to more than six years back.
- We also urged HMRC to exercise caution over its proposal to withhold tax reliefs such as Gift Aid from charities that, when asked, have failed to submit tax returns on time. We believe that HMRC should only penalise charities that have deliberately and knowingly defaulted. Many charities, especially smaller ones, can be late in making a submission either out of ignorance or through no fault of their own.
The full text of our joint response addresses the issues raised by the consultation in some detail. HMRC has not, as yet, committed to any of its proposals. Discussion may therefore continue well beyond the consultation period and we therefore encourage charities to familiarise themselves with the issues involved.