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19th April 2012

Charity Tax Developments

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Two developments on the tax position for charities have arisen lately and both require charities' attention so that tax reliefs are not at risk.

Gift Aid Declarations

HMRC has published updated guidance on the points that must be covered by a gift aid declaration: in short, more detail is required.

Before your charity or Community Amateur Sports Club (CASC) can claim tax back on a donation made by an individual, you must obtain a Gift Aid declaration from that individual (the donor).

HMRC's guidance and model declarations make clear the declaration must contain certain information about the donor and show that the charity or CASC has advised the donor that they must pay enough tax to cover all of their charitable donations and not just the donations made to a particular charity at that particular time.

If your charity or CASC does not provide the explanation the declaration will be invalid and Gift Aid will not be due on the donation. Charities have until the end of the year to make changes. HMRC will continue to accept Gift Aid claims and donations made using forms based on the wording in the old HMRC model declarations until 31 December 2012. Declarations in use at the end of the year (ie declarations made before 31 December 2012 relating to current or continuing donations) will remain valid.

HMRC may ask to see the declarations so your charity must keep a record to support your Gift Aid repayment claims. The guidance and model declarations have been developed to ensure that charities give a full and correct explanation of the law to their donors before the donor makes the declaration. There is no set design for a Gift Aid declaration and a declaration by the donor can be made in writing, orally or electronically. You can choose to use your own Gift Aid declaration form but it must contain certain information, as set out on HMRC’s website.

By incorporating the required information set out in HMRC’s guidance, charities can be certain that HMRC will not challenge the associated Gift Aid claim, on the grounds that the donor gave a valid declaration.

New Definition of a Charity

From 1 April 2012 the new definition of a charity under Schedule 6 of the Finance Act 2010 will apply to all UK charity tax reliefs and exemptions administered by HMRC.

All charities that do not claim Gift Aid but claim other UK charity tax reliefs and exemptions administered by HMRC are affected by the new definition. Charities that claim Gift Aid have been required to meet the new definition since 1 April 2010.

In order to continue to be eligible for the charity tax reliefs and exemptions, charities must:

  • be established for charitable purposes only;
  • be located in the UK or an EU member state, Iceland or Norway;
  • be registered (where the law requires this) by the Charity Commission or equivalent regulator;
  • only engage people to manage the charity’s finances who are fit and proper persons. More information on the fit and proper persons test can be found on the HMRC website.

Charities affected should read the HMRC guidance on fit and proper persons test and check they comply with the above requirements. In many cases charities will already have procedures in place to comply with the above.

If you have any questions on either of the above matters, please contact Chris Knight at or 01604 463103