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HMRC makes limited concessions on Fit and Proper Persons test 1

Finance | Gareth Jones | 13 Jul 2010

HMRC has admitted that it got its initial guidance on the Fit and Proper Persons Test wrong, but sector representatives remain concerned despite the release of an amended document last week.

In the revised guidance released last Friday, the Revenue has removed the statement that all cheque signatories would be considered ‘managers’ and therefore subject to the test, significantly reducing the number of staff charities would have to ensure are 'fit and proper'.

Instead it says: “Most large charities have a board of trustees and an executive board of senior employees. In such cases the trustees and members of the executive board would be managers of the charity.”

However, the guidance remains vague on what level of proof will be required for HMRC to deem an individual unfit.

More to be done

Clive Cutbill (pictured), head of the charities and philanthropy team at Withers, has, along with Nick Bater of the Wellcome Trust, been representing the Charity Law Association (CLA) in negotiations with HMRC.

He told Civil Society the guidance is likely to be revised again: “They rushed out guidance initially which they accept was wrong.

“Someone in the Revenue then gave the undertaking that they would get new guidance up on Friday but there is recognition that there is more to be done.”

The CLA has yet to take a position on the test as its tax committee has not formally met, but Cutbill said his perspective is reflected in a Withers briefing document, which argues that “issues remain to be considered” despite the revisions.

That note argues: “It seems unlikely at this stage that any future revised guidance will limit the scope of the new test to charity trustees alone since the fraud risk HMRC has identified extends also to persons with control of charitable assets.

“If the guidance continues to refer to ‘managers' being all those with control over charitable assets, it will be difficult for charities to decide with certainty how far this control test goes and whether those who determine charity budgets (or who manage petty cash) will be caught.

“HMRC's wide interpretation may be open to legal challenge and this, combined with pressure from sector groups, may in time lead HMRC to amend its guidance further.”

Uncertainty

Regarding the level of proof required for HMRC to intervene, the note says: “It seems possible at this stage that a person could be deemed to be unfit even if HMRC lacked sufficient proof of fraud to lead to a conviction in court.

“This is another area of uncertainty for charities which has been repeatedly raised with HMRC by the Charity Tax Group and other sector working groups.”

The most vehement critic of the test has been the law firm Bates Wells & Braithwaite. Bill Lewis, a tax consultant at the firm, said HMRC has still not provided enough guidance on what charities are expected to do to ensure managers are fit and proper.

“They do say if charities have taken reasonable efforts to try and make sure someone’s fit and proper then the charity won’t get penalised, but they don’t actually explain the kind of things the charity has to do.

“So there’s a certain amount of common sense there but as we know, one persons being reasonable is another’s person’s fascistic regime is another person’s lax regime.”

Lewis added that the test is giving charities extra bureaucracy “in order to satisfy HMRC’s paranoia”.

“There is fraud going on but it is a drop in the ocean really compared to the amount of money that flows the way of charities.

“They did give us some statistics but believe me the numbers are relatively small beer, and HMRC has a track record on bigging up problems to the government.”

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