Charity Commission warning not to cross line between tax planning and tax avoidance

The Charity Commission has warned trustees to make sure they do not to cross the line between tax planning and tax avoidance.

The warning comes in a new paper explaining the commission’s policy on charity tax reliefs.

The new document, which is on the commission’s website, says trustees have a duty to “engage in reasonable and prudent tax planning”.

It says they should use available tax reliefs in line with the spirit in which they were created.

However, it warns against “tax arrangements which exploit tax legislation artificially, particularly where they serve to benefit private interests, as well as those of the charity”.

The document says: “Charities need to consider carefully the point at which reasonable and prudent tax planning becomes tax avoidance. In particular, when trustees are considering proposals for tax arrangements that are supported by favourable legal opinion from a tax specialist, they should in such circumstances always take professional advice from a reputable adviser unconnected with the proposed arrangements.”

It is believe this is a reference to charities being approached by people who were trying to profit from selling a chance to join a tax-evasion scheme.

The guidance says that engaging in “serial and contrived financial transactions involving charities and companies which seek to disguise what may have been a taxable transaction” would be considered a breach of trustee duties, and meanwhile makes clear that it is acceptable to encourage eligible donors to claim Gift Aid on donations.

Jane Hobson, head of policy at the commission, said: “The guidance clearly states that tax matters are for HMRC and that tax evasion, tax fraud and other abuses of the tax system are also dealt with by HMRC.

“However, where trustees use fiscal reliefs in a way that is in breach of their duty to act prudently and in the best interests of their charity, the commission will have very serious regulatory concerns.”

Nobody wants to pay more tax than is necessary. That is why it makes sense to work with specialist tax advisers, who can provide expert advice on how to organise your financial affairs in the most tax-efficient way.

For more information on what Nicklin can do for you, please contact us.