Budget 2006 - Tackling abuse of tax reliefs for charities

22nd March 2006

For some time now there has been concern about the abuse of reliefs for charities by individuals seeking to take advantage of the generous income tax relief available to charity donors. The Charity Finance Directors Group believes that it is essential that the charity brand is protected and not tainted by association with tax avoidance schemes. It therefore supports measures to protect charitable reliefs from such abuse.

The Budget provides for three measures to counter those wishing to take advantage of the current accessibility of tax reliefs and light touch administration from government.

These measures seek to protect the current reliefs to charities and ensure it is only charitable activity that has access to tax relief. The measures below should have no impact on the flow of money to genuine charitable purposes and charities should not be affected by these measures where they use their funds for the benefit of charity.

The first measure introduced concerns Company Gift Aid. Currently there are anti avoidance measures in place for "close" companies. These prevent the donor receiving a large benefit from the charity in return for the donation and impose other restrictions that prevent the donation being repaid or being part of an arrangement to purchase property.

From 1 April 2006 the anti avoidance measures will be extended to apply to all companies thereby bringing the measures in line with "close" companies and individuals and introducing a level playing field.

The second measure provides a more direct restriction of tax reliefs where a charity incurs non charitable expenditure. The change will bring tax law into line with charity law. A charity will lose tax relief on a pound for pound basis where it incurs non charitable expenditure.

This measure will be implemented with effect from 22nd March and charities spending money on charitable activities should see no change and this measure should have no impact on their activities.

The third measure is to stop people who use charities as private moneyboxes, reaping the tax reliefs and then taking the money out for private use. In future any person, company or trust donating £25,000 in any 12 month period or £100,000 in a 6 year period wil be classed as a 'substantial donor'. Once the donation limit has been met and the company, person or trust has been identified as a 'substantial donor' this will be effective for that year and the next five years.

Transaction between a 'substantial donor' and a charity will potentially be caught by the new legislation. However, the legislation will filter out genuine commercial transactions between a 'susbtantial donor' and a charity as well as those that are beneficial to the charity and the charity's objectives and not for the avoidance of tax.

Again this measure should have little effect on genuine charities. For those charities who do have 'substantial donors' it is likely that they will want to be aware and proactively manage relations with the donor so should be aware to such issues.

This measure will be implemented as of 22nd March.

You can download CFDG's summary of some of the main points of the 2006 Budget and parts of interest to the voluntary and community sector

  • Email
  • Twitter
  • Facebook
  • Linkedin

© Charity Finance Group / © Charities Resource Network / Registered Office: 15-18 White Lion Street, London, N1 9PG.
A Company Limited by Guarantee. Registered in England No. 3182826, Registered Charity No. 1054914, Registered VAT No. 945 6038 09.