New provisions, to be known as the ‘tainted charity donations’ rules, are to replace the ‘substantial donor’ anti-avoidance provisions of Section 54 FA 2006 – now contained in Sections 549-557 Income Tax Act 2007 for trusts and Sections 502-510 Corporation Tax Act 2010 for companies. These provisions will also apply to Community Amateur Sports Clubs (CASCs).
The substantial donor rules were introduced in the 2006 legislation to catch abuse of the tax incentives for charitable giving where large donations were linked to substantial benefits to be provided to the donor. It soon became apparent that innocent cases were being caught and that an impossible administrative burden was being placed on charities as they sought to maintain the records required to ensure compliance. Additionally, there was real concern about the potential financial implications for charities because the legislation imposed the resultant tax penalties on the charity rather than the donor.
Following representations from ICAEW Charity and Voluntary Sector Group and others in the sector, the March 2008 budget announced that the Government would consult on ways of resolving the sector’s concerns. Finding an appropriate way forward proved more difficult than some initially imagined but draft clauses for inclusion in the 2011 Finance Bill have now been published and are open for consultation until 9 February 2011.