Fit and proper person guidance

The Finance Act 2010 introduced a definition for tax purposes of charities and other organisations entitled to UK charity tax reliefs. The definition includes a requirement that to be a charity an organisation must satisfy the ‘management condition’.

The definition applies to Gift Aid with effect from 1 April 2010. The definition was extended to all other charity tax reliefs administered by HMRC with effect from dates on or after 1 April 2012.

For a charity to satisfy the management condition its managers must be ‘fit and proper persons’. There is no definition in the legislation of a ‘fit and proper person’. This guidance explains how HMRC applies this test to people who have the general control and management of the administration of the charity. HMRC assumes that all people appointed by charities are fit and proper persons unless HMRC holds information to show otherwise. Provided charities take appropriate steps on appointing personnel then they may assume that they meet the management condition at all times unless HMRCconsiders it necessary to make further enquiries.

Where HMRC finds a manager of a charity is not a fit and proper person, a charity won’t necessarily lose entitlement to the charity tax reliefs. HMRC is able to treat a charity as having met the management condition where either that manager has no ability to prejudice the charitable purposes of the charity or the application of its funds, or the circumstances are such that it is just and reasonable to treat the charity as having met the management conditions throughout the period that manager has been in office. A charity’s tax reliefs and exemptions won’t normally be withdrawn during an enquiry into whether it meets the management condition. HMRC may however decide not to make repayments of tax during an enquiry, depending on the circumstances. Where the management condition is found to be satisfied, or HMRC treats the management condition as being met, throughout the period then the charity will qualify for tax reliefs and exemptions throughout the period. HMRC will make any outstanding repayments at the conclusion of that enquiry.

HMRC has published detailed guidance on the fit and proper person test and – having had some members report that it is difficult to find – the model declaration for claiming charity tax relief can also be found here (and this was updated in March 2017 to clarify that anyone involved in a disputed tax avoidance scheme could be caught by the rules). Please note the guidance is expected to be updated in 2017.

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