Tax planning guidance for charities

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The Charity Commission has published new regulatory guidance to trustees on the use of tax reliefs.

In the guidance, the Commission encourages trustees to engage in reasonable and prudent tax planning and "to take advantage of available statutory tax reliefs relating to charities where these will assist the work of the charity", including the Gift Aid scheme. However it also serves as a reminder to trustees to act in accordance with their fiduciary duties and that participation in tax avoidance arrangements is likely to cause reputational damage to the charity. The guide helpfully provides clear examples of tax evasion and tax fraud and stresses that such arrangements are illegal.

The Charities Act 2011 gives the Charity Commission powers to exchange information with HMRC where it has concerns about tax fraud, tax evasion or tax avoidance by charities. A government consultation in 2014 had considered the introduction of a statutory test to allow HMRC to refuse recognition to charities established for tax avoidance purposes, but this idea was rejected on the grounds that such a test would have been disproportionate.

The new guidance has therefore not been introduced with any additional powers for the Charity Commission or HMRC to deal with tax planning concerns, but it is not discretionary; charities are expected to act in accordance with the guidance and must have very good reason for not doing so. The Commission has made it clear that it will have "very serious regulatory concerns where trustees’ use of fiscal reliefs are in breach of their duty to act prudently and in the best interests of their charity".

Please click here to read the full guidance.