The new definition of a charity will apply to all UK charity tax reliefs from April 2012

The Finance Act 2010, Schedule 6, Part 2 (Commencement) Order 2012. S.I.2012/736 and the Finance Act 2010, Schedule 6, Part 1 (Further Consequential and Incidental Provision Etc) Order 2012/735 were made on 8 March to apply the new definition of a charity under Schedule 6 of Finance Act 2010 to all UK charity tax reliefs and exemptions administered by HMRC not already covered by the definition, from 1 April 2012 onwards. The Orders and an explanatory memorandum in relation to the Consequential Order are published on the legislation.gov.uk website at the links below

The Finance Act 2010, Schedule 6, Part 1 (Further Consequential and Incidental Provision etc) Order 2012 (Opens new window)

The Finance Act 2010, Schedule 6, Part 2 (Commencement) Order 2012 (Opens new window)

Who is affected?

All charities that do not claim Gift Aid but claim other UK charity tax reliefs and exemptions administered by HMRC are affected by the new definition. (Charities that claim Gift Aid have been required to meet the new definition since 1 April 2010). The date from which the new definition applies depends on the specific relief or exemption.

In order to continue to be eligible to the charity tax reliefs and exemptions, charities must:

  • be charities under the law of England and Wales, or would be, if they were established in England and Wales; and
  • be located in the UK or an EU Member State, Iceland or Norway; and
  • be registered by the Charity Commission where the law requires, or be registered by a regulator equivalent to the Charity Commission in their home country if the law of the home country requires; and
  • meet the "management condition"; broadly the people involved with the charity’s finances must be "fit and proper persons". More information on the fit and proper persons test can be found in the HMRC guide Applying to HMRC for recognition as a charity for tax purposes

What do affected charities need to do?

Charities should read the guidance on the fit and proper persons test if they have not already done so. In most cases charities will need to do nothing further because they will already have procedures in place to ensure that personnel are fit and proper persons. Charities may wish to ask trustees and other managers of the charity to make a declaration that they are fit and proper persons but that is not mandatory.

Do new charities need to complete form ChA1 before claiming a tax relief or exemption?

All new charities making a claim to repayment of tax under Gift Aid or other tax repayment on the R68 claim form must complete form ChA1 before HMRC can process their claim. Charities claiming other reliefs will not need to fill in a ChA1 routinely before they claim an exemption. So long as the charity is confident it meets the new definition it can claim the exemption. HMRC may at some point ask such charities to complete form ChA1 where they wish to check a charity's eligibility to charity tax reliefs.

What about VAT?

Suppliers of goods or services may ask for confirmation that a charity is accepted by HMRC as a charity for the purpose of allowing VAT zero rating. The charity can use HMRC's letter confirming your charitable status for this purpose. (The letter has the code CTY001 at the bottom.)