Extending charity tax reliefs to certain European organisations


The measure

Following the 2009 judgment in the European Court of Justice (ECJ), reliefs available to UK charities and Community Amateur Sports Clubs (CASCs) will be extended to equivalent organisations in the European Union (EU), Iceland and Norway. This will be achieved by the introduction of a statutory definition of 'charity', 'charitable company' and 'charitable trust'.

In addition to those changes affecting individual donors, there are further changes for charities, both in and outside the UK. Charities receiving donations tax-free will face tightened rules over what they spend the donations on, and will need to take reasonable steps to ensure monies paid to non-UK bodies are used for genuine charitable purposes.

The rules regarding the recovery of tax overpaid to charities (where individuals using gift aid have not paid enough tax to cover the donation) will be amended to apply the same treatment to UK and non-UK resident donors. HMRC's concessionary practice of making in-year repayments under gift aid to charities will be put on a statutory basis, with some restrictions on the number and value of in-year repayment claims.

Who will be affected?

  • UK and non-UK resident individuals and companies who make donations to charities in the EU, Iceland or Norway; and
  • Non-UK resident individuals with UK-sourced income who make gift aid donations; and
  • Trustees/managers of charities and CASCs both in the UK and the EU, Iceland or Norway.

When?

The restrictions on charities regarding their spending, both in and outside the UK, take effect from 24 March 2010.

Changes to the definition of 'charity', and changes to the rules on in-year recovery of tax in respect of gift aid donations, take effect from 6 April 2010.

Our view

This measure will be welcome to individuals making donations to charities in the EU, Iceland and Norway, who have not previously been able to claim relief. Individuals with significant contributions between the ECJ judgment date (27 January 2009) and April 2010 may want to consider making a claim to HMRC for tax relief on these donations. The tightening of the rules for charities themselves are perhaps unsurprising, given the opening up of the system to charities regulated outside the UK, and will likely result in increased administration requirements for charity trustees and managers.