UK: Charity Bites: Match Fit? Would Your Directors Pass The New HMRC Charities 'Fit And Proper Persons’ Test?

Last Updated: 7 June 2011
Article by Kirstie Penman

Until recently, this was a question that you'd be more likely to hear in the boardrooms of professional football clubs, where the "fit and proper persons" test is undergone by owners and directors (mandated by the Premier League, the Football League and the Football Conference), in the hope of preventing clubs from falling into the hands of corrupt or untrustworthy businessmen.  Since its introduction in 2004, there have been some headline-making examples of owners and directors falling foul of the test, such as Stephen Vaughan, who was disqualified as a director of Chester City in November 2009 following his conviction in a £500,000 VAT fraud case.

Now the managers of charities are also having to face a fit and proper persons test in order to qualify for charity tax relief - a move which has already sparked a great deal of debate, comment and confusion.


In March 2010, the UK Government announced that UK charitable tax reliefs - previously restricted to UK resident charities - were to be extended to eligible charities established in Europe.  This meant that new measures were required to ensure that these reliefs were used only for charitable purposes.  

In order to achieve this, the Finance Act 2010 stipulated new conditions that organisations must fulfil before they could be recognised as a charity for tax relief purposes, the most controversial of which was the 'management condition' - or the fit and proper persons test for managers of charities.  There have been substantial complaints and widespread concern about the new test, particularly with regard to the lack of clarity around what is actually required, and the increased administrative burden that it imposes.  

Who does the test cover?

The term "managers" is defined by the Finance Act 2010 as "the persons having general control and management of the administration of a charity".  If this sounds familiar, that is because it is precisely the same wording as the definition of "charity trustee" in the Charities and Trustee Investment (Scotland) Act 2005.  However, it is important to note that the guidance issued by HMRC indicates that they will be applying the term more broadly: -

The term "manager"... for the purposes of this legislation, applies to the trustees of charities, directors of corporate charities, CASC officials, and any other persons having general control and management over the running of the charity or the application of its assets... For example: in a typical small local charity a manager for the purposes of the fit and proper persons test could include the Chairperson, Treasurer, Secretary and the rest of the management committee who would have control over expenditure. In a larger charity a manager for the purposes of the fit and proper persons test would include all trustees or directors of a corporate charity but may also extend to certain employees who are able to determine how a significant proportion of the charity's funds are spent. For example, most large charities have a Board of Trustees and an Executive Board of senior employees. In such a case the trustees and members of the Executive Board would be managers of the charity.

In particular, it will be noted that HMRC Charities specifically includes senior management staff within the definition of "manager". While OSCR has occasionally referred to the possibility that it might treat a senior employee as a charity trustee in exceptional circumstances, the general rule - so far as Scottish charity law is concerned - is that only board/management committee members are treated as charity trustees.

Who qualifies as "fit and proper"?

This is quite a difficult question to answer, as the phrase is not defined in the legislation - so we have to rely on the HMRC guidance.   They provide a list of examples where a person may fail the test: -

"Factors that may lead to HMRC deciding that a manager is not a fit and proper person include, but are not limited to, individuals:

  • with a history of tax fraud
  • with a history of other fraudulent behaviour including misrepresentation and/or identity theft
  • for whom HMRC has knowledge of involvement in attacks against or abuse of tax repayment systems
  • barred from acting as a charity trustee by a charity regulator or Court, or being disqualified from acting as a company director."

However, the wording used makes it clear that there could be other instances where a person would not meet the test. HMRC states in its guidance that it "does not offer a clearance service for charities to confirm that particular managers are fit and proper persons" - so charities are left unsure where the boundaries may lie.

What do charities have to do to meet the test?

New charities applying for charity tax relief

Charities not yet in possession of an HMRC charity reference number will need to file a form CHA1, along with a copy of the charity's governing document (constitution), registration documents from the charity regulator (presumably the charity recognition letter issued by OSCR, in the case of a Scottish charity), any available accounts, bank statements, and evidence of the charity's public benefit activities.  

The form asks for information about the funding history of the charity, how it will raise new funds and details of its operating area, as well as asking for details of various individuals involved with running the charity, including

  • the person making the application;
  • the nominee - a person outside the charity (if any) who is authorised to submit Gift Aid or other repayment claims; and
  • any "responsible persons".  

Responsible persons are defined as:

"the people responsible for running your organisation...all trustees (the people legally responsible for your organisation), directors, authorised official, the person who is making this application (where you are not an agent) and other persons in controlling positions within your organisation such as chairman, treasurer, secretary and any cheque signatories."

The form goes on to state that all such "responsible persons" should read the guidance on "fit and proper persons" - and that anyone included on the form must meet the test.
The HMRC guidance states that HMRC "will generally assume that charities have given proper consideration to the suitability of their managers to act in such capacity, and that consequently those managers are fit and proper persons."  

HMRC say that they will only carry out full checks where there appears to be a high-risk of non-compliance, so the responsibility for ensuring that managers meet the test rests firmly with the charity itself - and despite the fact that (see above) the boundaries of what is or is not a problem from the point of view of the "fit and proper persons" test remains unclear.  

HMRC has attached a declaration to the end of its guidance note on fit and proper persons.  It is recommended that the charity ask everyone who falls within the category of "managers" or "responsible persons" to read the guide, and then sign the declaration - which contains a number of statements confirming, for instance, that they have not been involved in tax fraud, and declaring that they will ensure that all tax reliefs are used for charitable purposes.  These forms are then retained by the charity, and can be produced in the event of an investigation by HMRC.  Such a step is not obligatory, but would be highly recommended.

Existing charities (already recognised as eligible for charity tax relief)

It is important to note that the test will also apply to charities which are already in receipt of tax reliefs.  Whilst they will not be obliged to submit the CHA1 form, it would still be sensible to take reasonable steps to ensure that their existing managers meet the test; how this is achieved is left up to the individual charity - but, again, asking managers to sign the declaration form would be recommended.  Also, on the first occasion that the charity needs to notify HMRC of a change to its details - such as change of address, or changes in the individuals who deal with HMRC on a day to day basis (authorised officials or nominees) or the charity's agent - it should use the 'HMRC Charities Variations Form' (ChV1) and should include details of its responsible persons who, from that date, together with the authorised official, will be the only persons on whose authority HMRC will act to change details on the charity's tax record.

What happens if a charity fails the test?

Where HMRC finds that a manager is not a fit and proper person, they will first advise the manager of its decision.  The manager can then ask for that decision to be reviewed by a senior manager in HMRC Charities, and if they are still not satisfied by their decision, then by the Head of HMRC Charities, and if necessary also by the Adjudicator.

If, after those reviews, HMRC still considers the person is not fit and proper,  HMRC will ask him/her if he/she intends to remain as a manager of the charity. If the person stands down as a manager HMRC will not normally inform the charity; however, if he/she remains as a manager HMRC, will notify the charity that it considers that the manager is not a fit and proper person. HMRC is not normally able to disclose specific concerns about a person to the charity without that person's permission - but they will need to explain that, because the manager is not a fit and proper person, the management condition is not met and so tax relief may not be given.

However, the fit and proper persons test does allow HMRC to exercise its discretion to allow relief even where the test has been breached, if the circumstances are such that it is 'just and reasonable' to treat the management condition as being met - for instance, where a charity can show it made a genuine mistake and there has been no misuse of charity tax reliefs.  It can also apply discretion where the charity can demonstrate that the manager concerned is not able to influence the charitable purposes of the charity or the application of its funds.

HMRC also has wide powers to work with charities to find a remedy for the situation by implementing measures such as introducing supervision to an unfit manager, moving him/her to another role, or dismissing the individual in question, as a condition of maintenance of tax relief.

If, in exceptional cases, the charity does not make any changes, then HMRC can reject the charity's claim to tax relief. Whilst the charity would have a right of appeal, it is clear that the only sure way to avoid having a claim denied is for an organisation to maintain its own rigorous internal procedures to pass the test and ensure that its managers are 'fit and proper' - or else risk being caught offside by HMRC...

Further information

You can read the guidance in full, and download the required HMRC Charities forms from their website at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.