1 Registration of your charity with the Charity Commission – why bother?
Charities ask us whether they must register as a charity with the Charity Commission. Following very recent changes in tax law, it is now essential that charities that are not registered as charities do so immediately, if the law states that they must be registered. If your charity should register with the Charity Commission (“the CC”) but has not done so the charity’s entitlement to Gift Aid may be in jeopardy. You may also lose out on other tax advantages offered to charities.
2 Entitlement to Gift Aid as a Charity
The rules as to the requirements for a Charity to qualify as a Charity for Gift Aid have recently changed as result of the Finance Act 2010 Schedule 6. With effect from April 2010 a new definition for tax purposes of charity has been introduced. The new provision says that a Charity must:-
- be established for charitable purposes only, and
- meet the jurisdiction condition, and
- meet the registration condition, and
- meet the management condition.
This guide will focus primarily on the registration condition (3) but it is useful to explain a little of the other conditions (1) (2) and (4) also.
2.1 Charitable purposes
Condition (1) requiring exclusively charitable purposes is not new and means that the organisation must be established for one or more of the purposes set out in section 3 of the Charities Act 2011 now as being charitable. These purposes include numerous categories ranging from the long standing categories of relief of poverty and advancing education and religion to the newer ones such as the advancement of citizenship or community development, amateur sport and environmental protection. All of these will be charitable but it has to be remembered always that, no matter what the purposes, the Charity must also satisfy the public benefit requirement: See separate briefing note
2.2 Jurisdiction condition
Condition (2) “the jurisdiction requirement” means simply that the Charity must be subject to the control of the High Court in England and Wales, or the Court of Session in Scotland or the High Court in Northern Ireland. In general, charities situated in England or Wales will be subject to the control of the High Court in England and Wales.
2.3 Management condition
Condition (4) “the management condition” is a new requirement and means that those who are managers of the Charity must be “fit and proper persons to be managers” of the Charity. There is detailed guidance in HMRC’s website as to what they regard as a “fit and proper person”. HMRC say “HMRC assumes that all people appointed by charities are fit and proper persons unless they hold information to show otherwise. Provided charities take appropriate steps on appointing personnel then they may assume that they meet the management condition at all times unless, exceptionally, they are challenged by HMRC”.
HMRC go on to indicate factors which may lead to HMRC deciding that a manager is not a fit and proper person including individuals:-
- with a history of tax fraud, or
- with a history of other fraudulent behaviour, or
- known by HMRC to be involved in attacks against or abuse of tax repayment systems, or
- who are barred from acting as a charity trustee by the CC or who are disqualified from acting as a director of a company.
Even if an individual is regarded by HMRC as not being a fit and proper person the Charity will not necessarily lose tax relief if the manager concerned has no ability to influence the charitable purposes of the Charity or the application of its funds or for other reasons it is just and reasonable to treat the Charity as having met the management condition during the particular manager’s period of office.
It does appear that it will be fairly rare for HMRC to treat the management condition as not complied with.
As to who is to be classed as a “manager” the term is defined as “the persons having the general control and management” of the charity. It includes the trustees and directors of charitable companies and “any other persons having general control and management over the running of the charity or the application of it’s assets.” It could include the Treasurer and Secretary and other members of any management committee who are not actually trustees or directors. In larger charities it could include an employee, such as the Chief Executive, who is able to determine how a significant proportion of the charity’s funds are expended.