Tax compliance rules for charities to change

Newsletter issue – December 2024

Plans to change tax compliance rules for charities are moving forward, as the new Government picks up proposals for reform to prevent misuse.

The previous Government had created proposals to prevent donors from obtaining a financial benefit from their contributions and stop wrongful use of charitable investment rules.

The changes also included introducing sanctions for charities failing to meet their filing and payment obligations.

After a widespread consultation receiving responses from charities, law firms, businesses and other bodies, the new Government has announced it will move ahead with the plans, though it will modify the original proposals.

The government says it will publish draft legislation for consultation in 2025, before introducing the legislation later in the year.

This will include making changes to the Fit and Proper Persons test to "enable it to better address poor compliance with tax obligations".

A charity manager or trustee who "persistently fails to comply with the charity's tax obligations, including timely filing of returns," will not pass the Management Condition.

In the latest statement on the proposals, officials noted: "This will provide a proportionate approach by addressing the risk but giving charities the opportunity to correct it before sanctions are applied."

HMRC says managers will get the chance to "rectify their non-compliance but if this is not done it may require the manager to be removed which may ultimately result in the withdrawal of tax reliefs".

There will be an education programme and communications campaign to flag up the new rules and to help charities understand how to comply correctly.

The Government also indicated it would tackle the problem of donors from obtaining a financial benefit from their donation by altering the Tainted Charity Donation rule, with the aim of implementing changes from 2026.