Charities have won exemption from a tax which would have made using a trading subsidiary a taxable activity.

The newly-published Finance Bill includes exemptions for charitable organisations from the newly-introduced Diverted Profits Tax, the Charity Tax Group said in a statement earlier this week.

The CTG lobbied the government on behalf of the voluntary sector and managed to get the exemption put into the Bill at the last moment.

Under the original drafting of the bill, as it was announced by the Chancellor in his Autumn Statement, charities with corporate subsidiaries or foundations that were attached to large corporations would have been directly affected.

Companies making donations to parent charities under gift aid would lead to tax bills as the Diverted Profits Tax would classify that as an attempt at “tax reduction”.

CTG chairman John Hemming said that if the exemption hadn’t been put in place, it would have been yet another example of charities being “unwittingly penalised by wider tax legislation”.

“We are very pleased that that the Government has listened to our concerns about the Diverted Profits Tax and has built in a specific legislative exclusion for payments to charities.

“If there had not been a change there was a danger that this tax would have made it impossible for charities to use charity trading subsidiaries.”

In addition to charities being officially exempt from the new tax, the Finance Bill also confirmed the introduction of VAT refunds for a number of medical charities, including air ambulances and hospices.