Budget 2014: Charity-based tax avoidance schemes hit by new measures

Charity Comments Off on Budget 2014: Charity-based tax avoidance schemes hit by new measures

Users of charity-based tax avoidance schemes such as the Cup Trust will in future have to pay any disputed tax upfront, following the introduction of measures announced by Chancellor George Osborne in this week’s Budget.

“We will now require those who have signed up to disclose tax avoidance schemes to pay their taxes, like everyone else, upfront,” Osborne said in his speech.

The requirement to pay upfront will apply to the disputed tax associated with any scheme that falls within the disclosure of tax avoidance scheme rules, which is believed to include the Cup Trust, as well as seven other tax avoidance schemes involving charities. The rules would likely apply to any schemes similar to those eight which are created in the future.

The Cup Trust allowed donors to make a purported gift to charity, and in exchange buy government bonds for a tiny fraction of their real value. They would then be entitled to claim higher rate relief on their gift, and the charity would be entitled to claim gift aid.

While HM Revenue & Customs has not paid out any tax relief to Cup Trust donors, those who used the scheme and self-assess their tax liability may not yet have had to pay tax on their gifts, and will not have to until the scheme is proved not to be legitimate at a tax tribunal.

The trust received £176m in two years but gave away just £55,000 to charitable causes. It claimed £46m in tax relief on its own account, and is believed to have entitled the scheme’s users to claim tens of millions more.

“The government is consulting further on measures to help deter the use of charities established for the purpose of tax avoidance, with any legislation to follow at an appropriate time,” the Budget document said.

Last week, HM Revenue & Customs published a discussion paper about new rules on a definition of a charity for tax purposes.

The CTG says it is concerned that the new rules will make it more difficult to establish and run legitimate charities.

Please contact Peter Taaffe, Managing Partner for more information.

To download our 2014 Budget Summary follow this link BWM 2014 Budget Report