Ann L Humphrey

Taxidermy: getting under the skin of tax law

Red Queen Syndrome
15.08.11

‘Well, in our country,’ said Alice, still panting a little, ‘you'd generally get to somewhere else - if you run very fast for a long time, as we've been doing.’

‘A slow sort of country!’ said the [Red] Queen. ‘Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’

Lewis Carroll in ‘Through the Looking-Glass'

Hello. My name is Ann and I suffer from Red Queen Syndrome (RQS). 

RQS is an incurable idiopathic condition prevalent in tax experts. Symptoms include:

• An overwhelming feeling that you are running as fast as you can but still going backwards (particularly at the time of publication of the Finance Bill – in 2010 there were three in eight months!)
• Obsessive checking and rechecking of legislation (to make sure it hasn’t changed since the last time you looked at it, even if that was only minutes before)
• Subscribing to HMRC’s RSS feed and – for those with the particularly severe form - reading it (there was a fascinating snippet the other week on the use of red diesel in grass cutting vehicles...)

The reason so many tax experts find themselves victims of RQS may become clearer if I give you an example of what brings it on. From time to time I give pro bono advice to charities.  I recently dealt with the following query about donations to charity. 

‘We are a Community Interest Company. Our team of volunteers provides commercial educational services, with profits donated to the charity of their choice at the end of the financial year. A couple of volunteers want to donate to charities who are not registered with the Charity Commission or HMRC as they are under the registration threshold, or to an international not-for-profit outside of the UK and Europe, which we can’t donate to because of HMRC legislation. Two UK registered charities have suggested that if we donate the money to them, they will transfer this money to these two charities. Is this allowed?’

Simple enough question you may think, but look at the answer:

‘Section 189 Corporation Tax Act 2010 gives a tax deduction for qualifying charitable donations by a company. In order to qualify, the payment must be made to a 'charity.' It seems to me that the payment will not be made to a charity if the terms on which it is made require it to be passed on to another payee.

‘Charity' is defined in section 202 CTA 2010 to mean certain named bodies and any 'body of persons or trust established for charitable purposes only'. To qualify the charity has to be established in the UK (Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39).

In January 2009, the Europpean Court decided (in Heinz Persche v Finanzamt Lüdenscheid) that a similar restriction in the German legislation was contrary to the EU Treaty. This led to the announcement in the first Budget of 2010 (there were two Budgets that year) that UK charity tax reliefs would be extended to certain organisations in Europe (including Norway and Iceland).

Although the definition in section 202 CTA 2010 was amended by paragraph 27 of Schedule 6 FA 2010 (enacted on 8^th April 2010) to extend the reliefs, scrutiny of the small print reveals that these changes were not to take effect (except in relation to gift aid) until brought in by Treasury Order.

Fourteen months later, we are still waiting for the commencement order, so the old definition of charity remains.  However it is clear from Persche that the definition of charity in section 202 is unlawful, and existing reliefs must be made available in respect of donations to charities established in other Member States. The fact that this arises out of directly applicable European law means that relief is presently claimable for such donations irrespective of what the UK law says.’

No wonder I have RQS.

Throw the lobster out to sea. Whee ...