The guidance on the new ‘fit and proper persons test’ for managers of charities has been revised and replaces the original version published in April 2010. It incorporates significant revisions to the new rules.

Finance Act 2010 introduced a new definition for tax purposes of charities and other organisations entitled to UK charity tax reliefs. The new definition includes a requirement that to be a charity an organisation must satisfy the ‘management condition’.

The new definition applies to Gift Aid with effect from 1 April 2010 and is due to be extended to other charity tax reliefs later this year. It therefore follows that this guidance applies at present only to charities claiming repayments of tax under Gift Aid. The management condition also applies to Community Amateur Sports Clubs.

For a charity to satisfy the management condition its managers must be ‘fit and proper persons’. There is no definition in the legislation of a ‘fit and proper person’ therefore the revised guidance explains how HMRC applies this test to those who have the general control and management of the administration of the charity.

Where HMRC finds a manager of a charity is not a ‘fit and proper person’, a charity will not necessarily automatically lose entitlement to the charity tax reliefs. HMRC is able to treat a charity as having met the management condition where either the manager has no ability to influence the charitable purposes of the charity or the application of its funds, or the circumstances are such that it is just and reasonable to treat the charity as having met the management conditions throughout the period the manager has been in office.

However as this could potentially have a serious impact on the cash flow of charitable organisations at a time when many charities are struggling with cuts in funding and lower donation levels, it is recommended that the detailed guidance be given due consideration.

Full details of the guidance can be found at http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp–persons–test.htm