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HMRC doesn’t trust charities

It is difficult to believe that HM Revenue & Customs likes charities very much.

Looking at the sector through the eyes of the taxman, charities are walking liabilities, profiting from generous tax breaks, but poorly-regulated and badly in need of a firm hand.

The taxman has glimpsed in the current laws potential for charities to perpetrate vast and shadowy tax frauds, and as a result has lobbied for increasingly arbitrary powers to ensure that charities cannot acquire any benefit without running it past HMRC first. Even though there is no evidence that fraud is rife in the sector, HMRC appears worried that it could break out, at any second, like measles.

The lack of trust in charities, and in the Charity Commission as their regulator, was made evident four years ago with the introduction of substantial donor legislation, a laughably ill-considered and wholly unenforceable scheme requiring charities to ensure they did not make any payment to any family member or business partner of any major donor for a 17-year period.

It has been seen again in two new pieces of legislation. The first is the fit and proper person test, which gives HMRC carte blanche to refuse tax breaks to a charity if it feels any trustee or senior manager is unreliable. The second is a rule giving it the power to declare any expenditure abroad by any charity to be non-charitable, and therefore subject to tax, if it believes proper steps have not been taken.

All three pieces of legislation have several things in common: they are wide-ranging and could affect any charity; they require lots of work from the sector; and they lay the burden of proof squarely at the door of charities, who must show they did nothing wrong.

The taxman will defend all this as reasonable and necessary to prevent crime. HMRC says that it will use its new powers fairly, honestly and transparently, and that those powers will have no effect on the law-abiding.

The question, in the end, is whether we trust them.