LawWorks query – Charitable donations

LawWorks  is a charity working in England and Wales to connect volunteer lawyers with people in need of legal advice, who are not eligible for legal aid and cannot afford to pay and with the not-for-profit organisations that support them.  From time to time,  Ann provides tax advice through them on a pro bono basis.  Below is one of the queries she has dealt with.


‘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 (we would lose the ability to count this against our taxable profits). 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?’

Short answer:

Section 189 Corporation Tax Act 2010 (CTA) 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.


Until the entry into force of certain provisions in FA 2010 (see below) ‘charity’ is, for the purpose of section 189 CTA, defined in section 202 CTA to mean certain named bodies and any ‘body of persons or trust established for charitable purposes only’. This means that to qualify the charity has to be established in the UK (Camille and Henry Dreyfus Foundation Inc v. IRC [1956] AC 39).

On 27 January 2009, the European Court decided (in Persche v. Finanzamt Lüdenscheid (C-318/07)) that a similar territorial restriction in the German legislation was contrary to article 56 of the EU Treaty (German law only allowed relief for charitable donations to charitable bodies resident in Germany) . The Persche case led to the announcement in the first Budget of 2010 that UK law would be changed to extend UK charity tax reliefs to certain organisations in Europe (and also Norway and Iceland). The changes also add some new statutory conditions before a charity will be recognised as such by HMRC. Although the definition in section 202 is amended by paragraph 27 of Schedule 6 FA 2010 and the new definition in Schedule 6 applied, these changes do not take effect until brought in by Treasury Order. As far as I can see this has not yet happened so the old definition of charity remains.

HMRC has its own (non-statutory) additional tests with respect to determining whether a body was charitable for some time. For charities in England and Wales, registration with the Charities Commission was prima facie evidence that a body was charitable. Where a charity in England and Wales does not have to register with the Charity Commission (where income is less than £5,000), certain additional information is required for the application for HMRC recognition to be successful.

*** UPDATE – March 2012***

The Finance Act 2010, Schedule 6, Part 2 , (Commencement) Order 2012 brought paragraph 27 of Schedule 6 FA 2012 into force for corporation tax purposes, for accounting periods beginning on or after 1 April 2012, and for income tax purposes, for the tax year 2012-13 and subsequent tax years.