News
‘Fit and proper’ – how does HMRC’s new requirement affect your charity? - 2010-06-20
In order to qualify for UK Charity tax reliefs, charities now have to satisfy something called the 'management condition' and demonstrate that its managers are 'fit and proper' persons. Whilst there is no definition of a 'fit and proper' person, HMRC has issued guidance on how it will apply a 'fit and proper' test to the managers of a charity.
The managers of a charity include trustees, directors and any other officials who have day to day control over the running of the charity. The purpose of HMRC's 'fit and proper' test is to ensure that charities are not controlled or managed by anyone who presents a risk to the charity and therefore may prejudice the charity's tax position. When a charity applies for registration, the Charity Commission considers whether the people named on the application are suitable to become trustees. However, this of itself offers no guarantee that these people will satisfy HMRC's requirements.
What does HMRC intend to do and how does it affect existing charities?
HMRC has said that it will not ask existing charities to show that their managers are 'fit and proper' persons as a matter of routine. But, if challenged, HMRC would expect a charity to be able to demonstrate that consideration had been given to the suitability of people appointed to positions of trust whether as trustees, directors or employees. In order to be able to do this, HMRC is suggesting that trustees may wish to obtain a 'declaration' from new managers, trustees or directors appointed after 5 April 2010, and expects new appointees to have read the 'fit and proper' guidance notes. A template for the declaration is included with the guidance notes at http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp-persons-test.htm (second page).
Completion of the form is not mandatory for new or existing trustees, directors or employees. However, if after 5 April 2010 there is a change to the person nominated by the charity to authorise gift aid reclaims or other tax returns, the charity must complete and submit to HMRC a 'Charities Variation Form'. This form requires the trustee or director who is authorising the change to the nominated person to state that they 'confirm that all new authorised officials have read HMRC's 'fit and proper persons' guidance which is available on the HMRC website.'
The form must be completed at least one month before submitting a gift aid claim, any other repayment, claim, or tax return so that the change can be processed in good time. The charity need not notify HMRC of other changes to trustees, directors or employees unless the change also affects the authorised official nominated by the charity. A copy of the 'Charities Variation Form' is available from the HMRC website by typing ChV1 into the search engine on the Home page.
Impact of the change
Whilst the 'management condition' affects all charities, and trustees and directors need to be aware of the 'fit and proper' declaration form, there is no action that existing charities have to take immediately in order to demonstrate that they meet the 'management condition', other than to complete the 'Charities Variations Form' where there is a change to an authorised official.
Trustees should be aware that HMRC may ask a charity to demonstrate that it satisfies the 'management condition'. Should this occur, completion of the 'fit and proper' person declaration form by all those affected would be appropriate.
If you require any help or further information please contact Charities Partner Sarah Morrison on 020 7516 2266 or email.
