Substantial donors to charity

Anti-avoidance provisions enacted in the 2006 Finance Act have had a significant impact on charities' obligations regarding transactions with their substantial donors. A consultation paper during the summer proposed a slight easing of the rules on paying remuneration and providing financial assistance to substantial donors. As a result we may see the final proposed amendments to the rules in the PBR.

Ideally, all bona fide transactions that carry out a charity's objects should be exempt from tax. However, this is unlikely to be granted as the Finance Act provisions are a broadly targeted anti-avoidance measure, and HMRC believe there is a significant risk of tax abuse by donor controlled charities.

It is likely we'll see an extension of the proposed exemption on paying remuneration to cover contracts that started before 22 March 2006, and on the exemption for providing financial assistance to include loans as well as grants.