The Chancellor announced in his Budget that he intended to revise the substantial donor rules (see With... an update for Charities on the budget) to avoid an undue burden being placed on charities. On 14 May, HMRC held a meeting in London for those who had replied to its consultation on the rules, at which their proposals were explained in more detail.
At the meeting HMRC indicated that they hoped to develop new rules to replace the existing rules, which they intend should include a 'purpose test' designed to ensure that only those transactions designed to abuse the tax reliefs available for charitable donations would be caught, and to unveil them in the Autumn 2009 Pre-Budget Review.
More worryingly for those charities potentially caught by the existing rules, there was some suggestion from HMRC that any repeal of the existing rules might not be retroactive after all. Their concern here seems to be that any new rules must come into force at the same time as the existing rules are repealed (to ensure continuity of coverage) and that if the change were made retrospective to 2006 (when the existing rules came into effect) the new rules could be challenged on the grounds that they amounted to retrospective taxation. Meanwhile, HMRC have indicated that charities should not be concerned as they do not propose to enforce the existing rules unless there is evidence of abuse of charitable reliefs; given that charities are obliged to assess their own tax liability under the Self Assessment Scheme, this assurance is of limited benefit.
A working party, of which Clive Cutbill (a partner in the Charities & Philanthropy Team at Withers LLP) is a member, has been constituted to assist HMRC in the development of these replacement rules and it is hoped that a solution to the 'retroactivity' issue can be found.
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