Charity Tax Compliance and Fit and Proper Persons Test

Charities benefit from valuable tax reliefs, but maintaining these benefits requires you to meet certain standards and keep HMRC informed of key changes. This includes ensuring that the people running your charity pass the 'fit and proper persons' test and that you report any changes to your charity's structure or officials promptly.

What is the fit and proper persons test?

The fit and proper persons test ensures that charities are not managed or controlled by individuals who present a risk to the charity's tax position. This test applies to people who run your charity, such as authorised officials and trustees.

HMRC uses this test to protect charitable tax reliefs from abuse. If someone fails the test, they should not be involved in managing or controlling the charity's affairs, as their involvement could put your charity's tax recognition at risk.

Who needs to pass the test?

The test applies to anyone in a position to manage or control your charity. This includes:

• Trustees
• Authorised officials (those approved to claim tax reliefs on behalf of the charity)
• Anyone else in a controlling position

Before appointing someone to these roles, you should consider whether they meet the standards required. Factors that might cause someone to fail the test include serious criminal convictions, a history of tax fraud, or previous involvement in charities that have had their tax recognition removed.

Keeping your charity's details up to date

You must keep your charity's details up to date by law. This requirement applies whether your charity is registered with the Charity Commission, recognised by HMRC for tax purposes, or both.

If you're running a community amateur sports club (CASC), you only need to tell HMRC about changes. The rules differ if your charity is based in Scotland or Northern Ireland.

Changes you must report

You must report any changes to:

• The name of the charity
• Your governing document
• Contact details, address or bank account details
• People who run your charity, such as authorised officials and trustees
• The way your charity operates (for example, what it does or its legal structure)

Failing to report these changes can affect your charity's tax position and may delay your ability to claim tax reliefs like Gift Aid.

Reporting changes to charity officials

When trustees or authorised officials join or leave your charity, you must report these changes. This is particularly important because these individuals must pass the fit and proper persons test to protect your charity's tax status.

Any change in who manages or controls your charity should be reported to both the Charity Commission (if you're registered) and HMRC.

How to report changes

You have two routes for reporting changes:

• Tell the Charity Commission about your changes online
• Use form ChV1 to tell HMRC about your changes

The order matters for certain changes. If you're changing your charity's name or governing document, the Charity Commission must agree the change before you tell HMRC.

Before changing your charity's name, check the rules for naming charities. If your governing document contains your charity name as a clause, you must update the document before you change the name.

Important timing rule for HMRC changes

After you've told HMRC about a change, you must wait 30 days before making any claims, such as for Gift Aid. This waiting period allows HMRC to update their records and ensures your claims are processed correctly.

Plan ahead for this delay, particularly if you're making changes to authorised officials who need to submit claims on behalf of your charity.

Special rules for charitable companies

If your charity is a company and you're changing its name, you must report the change in a specific order:

1. Tell Companies House

2. Tell the Charity Commission

3. Tell HMRC

Following this sequence ensures that all three organisations have consistent information and prevents complications with your charity's legal status and tax position.

Special rules for NHS charities and Royal Charter charities

Different rules apply if you're reporting changes for an NHS charity or a charity with a Royal Charter when dealing with the Charity Commission. However, you'll still need to tell HMRC about these changes in the usual way using form ChV1.

Maintaining compliance

Staying compliant with charity tax requirements means:

• Ensuring all trustees and authorised officials can pass the fit and proper persons test
• Reporting changes promptly to both the Charity Commission and HMRC as required
• Following the correct order when reporting changes
• Allowing 30 days after reporting to HMRC before making tax claims
• Keeping all contact details, bank details and structural information current

Good record-keeping and prompt reporting will help you maintain your charity's tax reliefs and avoid complications with HMRC or the Charity Commission.

Sources

• Charities: fit and proper persons test
• Reporting changes to your charity's details

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.