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Charity tax reforms should not overly burden charities, cautions ICAEW


Published: 25 Jul 2023 Update History

While ICAEW’s Tax Faculty supports HMRC’s efforts to counter the abuse of charity tax rules, any reforms should be proportionate to the issue. Otherwise, the reforms risk deterring volunteer involvement and vital donations to charities.

ICAEW’s Tax Faculty responded in ICAEW REP 70/23 to HMRC’s recent consultation on tightening anti-avoidance rules for charities and community amateur sports clubs (CASCs), and introducing additional sanctions for non-compliance. HMRC will need to ensure that any reforms do not create obstacles to charities attracting volunteers and donors due to increased administration and uncertainty over the rules. 

Feedback from ICAEW’s members working in or with charities, has highlighted that there is a lot of misinformation surrounding the taxation of charities. Many charity volunteers are unfamiliar with the tax rules and obligations that a charity is subject to. This, members expressed, drives much of the non-compliance that HMRC seeks to address. A targeted education campaign run by HMRC would go a long way to improve compliance with the current tax rules for charities. 

Proposals to extend record keeping requirements to over six years for charities would be a disproportionate move, the Tax Faculty considers. Similarly implementing a new sanctions regime to allow HMRC to withdraw gift aid and disapply other charitable reliefs may hurt the wider charity sector more than it would address abuse. In both cases, HMRC has existing powers available to enable it to challenge and penalise non-compliance where it is identified. 

The faculty suggested that to increase compliance, HMRC may wish to consider introducing a simplified checklist or annual declaration for charities. Any reforms must also be developed in conjunction with policy on Making Tax Digital for Corporation Tax, to ensure a coordinated strategy. 

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