We take a look at HMRC's new definition of a charity and in
particular what the 'management condition' means for
From 1 April 2012 all charitable organisations claiming any form
of UK tax relief or exemption will have to meet the terms of
HMRC's new definition of 'charity'. The
definition for tax purposes sits alongside the definition of a
charity under the Charities Act 2011 ("the Act"), which
is simply an organisation that is established for charitable
purposes (listed in the Act) and exists for the public
benefit. Charities which currently claim Gift Aid have been
required to comply with the new guidelines since April 2010, but
all other charities which intend to continue with their claims for
UK tax relief and exemptions should aim to fulfil the new
requirements by 31 December 2012.
In order to maintain eligibility for UK tax reliefs and
exemptions, charities must now demonstrate that they have satisfied
four conditions prescribed by HMRC. In short, they need to be
charities under the law of England or Wales, be located in the UK
(or an EU member state, Iceland or Norway), and they need to be
registered by the Charity Commission where the law requires (or an
equivalent Charity Commission in their home country). The
final condition, the 'management condition', which has
caused the most controversy, requires that any person involved with
the running of a charity's finances must be 'fit and
Charitable organisations are advised to familiarise themselves
with HMRC's guidance which contains details of a fit and proper
persons test, which essentially provides that an individual is
considered to be fit and proper if they ensure that charity funds
and tax reliefs are used only for charitable purposes. The
rationale behind the management condition is to ensure that
charitable organisations are not managed or controlled by
individuals who might misuse valuable tax reliefs.
HMRC recognises that the new test is likely to have little
impact in most cases since most charities will already have
procedures in place to ensure that their management staff are fit
and proper persons. Nonetheless, charities may wish to take
additional precautionary measures by asking their trustees,
directors and other employees who are involved in determining how a
significant proportion of the charity's funds are spent to sign
HMRC's model declaration certifying that they are fit and
proper, which could be produced as evidence in the event of an HMRC
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