TaxCorporate TaxRule hits charity pockets

Rule hits charity pockets

Obscure change to tax rules has severe impact on charities' trading structure

An obscure change to the treatment of cash in tax rules may have a severe
impact on the way charities structure their trading companies to attract Gift
Aid relief, a tax adviser has warned.

HM Revenue & Customs said earlier this month that, on the advice of
counsel, cash would no longer be regarded as an asset.

The change relates to a case currently before the special commissioners.
Advisers familiar with the case say that it relates to the way trading companies
owned by charities transfer profits to their charities to attract the relief.

Following changes to the rules and bearing in mind Gift Aid exemptions,
charities have been effectively forced to make transfers of assets at undervalue
to attract the relief, according to Mike Warburton, senior tax partner at Grant
Thornton.

The change to the denoting of cash means that this is no longer possible.

‘Charities are supposed to be supported by this government, at least that is
what you would think listening to the chancellor’s pronouncements. In practice,
of course, by his actions he has penalised charities heavily since he has been
in office,’ Warburton said.

The argument over whether cash was an asset or not was ‘daft’, he added. ‘It
all smacks a bit of our ancestors in the Middle Ages debating for days the
number of angels that you can fit on a pinhead.’

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