Introduction Background Note
35.UK charitable tax reliefs are being extended to organisations equivalent to charities and CASCs in the EU and in the European Economic Area (EEA) countries of Norway and Iceland following a judgment in the European Court of Justice (ECJ) in January 2009.
36.A new statutory definition of a charity entitled to UK charity tax reliefs is introduced. The definition is based on that of a charity under the law of England and Wales which is already used for UK tax purposes. New statutory definitions of a “charitable company” and a “charitable trust” are also introduced.
37.The definition introduces a four stage test to determine if an organisation is eligible for UK charity tax reliefs.
38.First, under paragraph 1 of the Schedule, the organisation must be established for charitable purposes only. The definition of charitable purposes is that under the law of England and Wales and is found in section 2 of the Charities Act 2006.
39.Second, under paragraph 2 of the Schedule, the organisation must meet the jurisdiction condition. It must be located in the UK or a member State of the EU or a specified country. The Commissioners for HMRC will have the power to specify countries outside the EU by statutory instrument. The countries of Iceland and Norway will be specified as soon as practicable.
40.Third, under paragraph 3 of the Schedule, the organisation must meet the registration condition. Where the organisation is required under the law of its home country to be registered with a charity regulator similar to the Charity Commission for England and Wales, it must be so registered. The purpose of this condition is to ensure that only organisations that comply with their charity obligations in their home country are eligible for UK charity tax reliefs.
41.Fourth, under paragraph 4 of the Schedule, the organisation must meet the management condition. All persons in the organisation having control and management responsibilities must be “fit and proper” persons. The term “fit and proper” is not further defined. “Persons” include corporate bodies and individuals who are trustees, directors, managers or any other officer of the organisation in a management position.
42.While a properly run charity always seeks to appoint persons of integrity to key management positions there is always a chance that a charity may unknowingly appoint a person who is not “fit and proper”. In such a case, under paragraph 4, the charity would cease to meet the management condition and would no longer be eligible to charitable tax reliefs even where it meets all the other conditions. However paragraph 4 is subject to the relaxation in paragraph 5.
43.Paragraph 5 relaxes the strict conditions under paragraph 4 in certain circumstances:
	where the manager is not in a position to prejudice the administration of the charity. For example, some charities appoint ex-offenders to positions of trust within a charity. If the ex-offender is not involved in the financial administration of the charity then sub-paragraph (2)(a) may apply and the charity may be treated as meeting the management condition; or
	where a person has been appointed to a management position within the charity and it is subsequently found that the person is not a “fit and proper person”. In such a case, where the charity has not colluded with the manager and works with HMRC to rectify the position, the Commissioners for HMRC may consider sub-paragraph (2)(b) applies and the charity to have met the management condition throughout the period the person was in post.
HMRC will use its discretion under this paragraph to ensure this test does not impose an undue burden on existing charities.
44.Whether either of the relaxations in paragraph 5(2)(a) or (b) applies will depend upon the circumstances of each case. A charity may challenge a decision by the Commissioners for HMRC not to apply paragraph 5 by appealing against the refusal of a claim to a tax Tribunal.
45.Paragraph 6 allows HMRC to publish a list of the names and addresses of organisations that have claimed, and appear to be eligible to, charitable tax reliefs. The list would be a guide only to an organisation’s eligibility, which may change from time to time, depending upon whether it meets all the conditions in paragraph 1 at any given time. The omission of an organisation will not necessarily signify that the organisation is not eligible to charitable tax reliefs; it is possible that an organisation that is eligible for charitable tax reliefs will not have made a claim for relief or exemption from tax to HMRC.
46.Part 2 makes a number of repeals and consequential amendments to enactments which use various definitions so as to substitute the new definitions of “charity”, “charitable company” and “charitable trust”. Together, the repeals and amendments apply the new definitions of these terms in Part 1 of the Schedule to the enactments.
47.Paragraph 29 enables additional minor amendments to be made to references in the statutes that may have been overlooked, without requiring primary legislation, for example, substituting “charitable company” for “body of persons established for charitable purposes”.
48.Part 3 applies the location condition and the management condition in Part 1, suitably amended, to CASCs. CASCs are eligible to certain charity reliefs, including Gift Aid.
49.Part 4 provides the commencement provisions. The new definitions in Part 1 will not apply to most provisions until HM Treasury make a commencement order. However the new definitions will apply with effect from 6 April 2010 to donations by individuals under Gift Aid.