Bates Wells accuses HMRC of Compact breach

Finance | Tania Mason | 24 May 2010

HMRC’s new ‘fit and proper person’ test that aims to prevent charities being used for tax avoidance, is a “very unwelcome sledgehammer to crack a nut”, law firm Bates Wells and Braithwaite claims.

It also accuses HMRC of breaching the Compact by failing to consult on the plans.

BWB’s founder, Lord Andrew Phillips, plans to lobby against the new rules being included in the Finance Act and last month his firm sent a letter to HMRC, copying in civil society minister Nick Hurd and others, outlining its objections.

The new test requires charities to send information to HMRC about every trustee and senior staff appointment, and allows HMRC to stop tax relief if it does not approve of the people appointed. It was introduced in the wake of the Persche High Court case that opened up cross-border donations across Europe.

The lawyers contended that the seven-page form that HMRC requires charities to fill in “imposes yet another bureaucratic burden on already beleaguered charities” and much of it mirrors information already required by the Charity Commission.

BWB argued that for registered charities there should be a presumption by HMRC that they qualify for charitable tax reliefs, unless the tax regulator has material grounds for suspicion that something is awry.

And for non-registered charities the fit and proper person test should only be applied to trustees, not senior staff too, as is currently proposed, the lawyers argued. They contended that several of the specific declarations within the ‘Model declaration for fit and proper persons’ were “appallingly vague” and that the declaration should be scrapped.

They added: “We fail to see why key charity tax changes cannot be properly consulted on before introduction…this is a clear breach of the Compact and we request that in future sufficient time is allowed for consultation with the sector.”

Directory: Bates Wells & Braithwaite
Who's Who: Tania Mason

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