Charities vulnerable to 'bond washing' dodge

A number of
charities
have been warned they may be vulnerable to a ‘bond washing’ tax dodge, as HM
Revenue & Customs says it has identified charities that have ‘overlooked the
the potential for liabilties in this area’.

Bond washing, a tax dodge which involves selling off a security that is about
to pay a coupon and then buying it back at a lower price in order to generate a
tax-free capital gain, has been blocked by legislation dating back to the 1950s.

Certain charities, however, appear to have been unwittingly used to structure
a bond washing tax dodge, as they are exempt from capital gains and income tax.

An HMRC spokesman
insisted that there was no ‘crackdown’ on charities, but the taxman did warn
that charities ‘needed to be aware of certain transactions’ and said that it was
working ‘with charities and their representative bodies on the way forward’.

UHY Hacker Young ,
which acts for number of charities, said, however, that HMRC should not focus on
charities, but the individuals using the charities as a conduit for bond washing
schemes.

‘Many charities are unlikely to be aware of what their fund managers are
doing, so if they are being used as a conduit for bond washing, it is probably
unwittingly,’ said UHY Hacker Young partner Roy Maugham.

HMRC maintained, however, that the bond washing rules applied ‘equally to
all’, including charities, and that charities had to comply with the rules.

Further reading:

Charity tax probes create late filing chaos

Charities pressured to conform

Charity giant voices VAT fears