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Ch.1: Setting up an organisation
Ch.2: Unincorporated organisations
Ch.3: Incorporated organisations
Ch.4: Charitable status, charity law & regulation
Ch.5: The organisation's objects
Ch.6: The organisation's name
Ch.7: The governing document
Ch.8: Registering as a charity
Ch.9: Branches, subsidiaries & group structures
Ch.10: Changing legal form
Ch.11: Collaborative working, partnerships and mergers
Ch.12: Members of the organisation
Ch.13: Members of the governing body
Ch.14: Officers, committees & sub-committees
Ch.15: Duties & powers of the governing body
Ch.16: Restrictions on payments & benefits
Ch.17: The registered office & other premises
Ch.18: Communication & paperwork
Ch.19: Meetings, resolutions & decision making
Ch.20: Assets & agency
Ch.21: Contracts & contract law
Ch.22: Risk & liability
Ch.23: Insurance
Ch.24: Financial difficulties & winding up
Ch.25: Employees & other workers
Ch.26: Rights, duties & the contract of employment
Ch.27: Model contract of employment
Ch.28: Equal opportunities in employment
Ch.29: Taking on new employees
Ch.30: Pay & pensions
Ch.31: Working time, time off & leave
Ch.32: Rights of parents & carers
Ch.33: Disciplinary matters, grievances & whistleblowing
Ch.34: Termination of employment
Ch.35: Redundancy
Ch.36: Employer-employee relations
Ch.37: Employment claims & settlement
Ch.38: Self employed & other contractors
Ch.39: Volunteers
Ch.40: Health & safety
Ch.41: Safeguarding children & vulnerable adults
Ch.42: Equal opportunities: goods, services & facilities
Ch.43: Data protection & use of information
Ch.44: Intellectual property
Ch.45: Publications, publicity & the internet
Ch.46: Campaigning & political activities
Ch.47: Public events, entertainment & licensing
Ch.48: Funding & fundraising: General rules
Ch.49: Fundraising activities
Ch.50: Tax-effective giving
Ch.51: Trading & social enterprise
Ch.52: Contracts & service agreements
Ch.53: Financial procedures & security
Ch.54: Annual accounts, reports & returns
Ch.55: Auditors & independent examiners
Ch.57: Value added tax
Ch.58: Investment & reserves
Ch.59: Borrowing
Ch.60: Land ownership & tenure
Ch.61: Acquiring & disposing of property
Ch.62: Business leases
Ch.63: Property management & the environment
Ch.64: How the law works
Ch.65: Dispute resolution & litigation

This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Russell-Cooke Voluntary Sector Legal Handbook, print out the order form at or send an email order by clicking . It costs £60 for voluntary organisations or £90 for others, plus 10% p&p.

To avoid spamming, an email address is not given on screen. If you can't see the word 'here' or have trouble sending an email by clicking on it, the address is bookservice at, with the spaces and 'at' replaced by the @ symbol.

The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.

Chapter 56

The items below formerly appeared on the legal update website for voluntary organisations and are archived here. The content may be out of date and links may not work. For current updates to the chapter, see the legal update website for voluntary organisations at


Added 21/11/10. This information updates chapters 56 & 57 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
As soon as an organisation starts charging for goods or services, it becomes subject to tax on the profit. There are some exemptions for charities, but a charity which trades outside the exemptions can end up in trouble. And any organisation, charity or not, which does not understand the VAT implications of its trading can get in trouble.

It all comes clear in Tax implications of charity trading, published by the Charity Finance Directors' Group in April 2010. Written by Pesh Framjee and the charity tax team at Howarth Clark Whitehill, this 140-page book is clear, detailed and easy to read, and best of all can be downloaded free of charge from the CFDG website via It can also be purchased from CFDG for £15.

Its 12 chapters cover introduction; basic tax exemptions; business sponsorship; trading companies; shops and cafes; merchandising; events; providing services; training and conferences; other areas (overseas operations, rental income/lettings, sports facilities, property sales, and gift aid admission to premises); cost allocation, transfer pricing and loss making trades; and social enterprise.


Updated 17/3/12. This information updates chapters 56 & 50 and ss.57.5, 58.7.2 & 61.10.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Since 1 April 2010, any charity or community amateur sports club (CASC) recovering tax on gift aid donations has had to satisfy HM Revenue & Customs that it meets the management condition set out in schedule 6 of the Finance Act 2010. From 1 April 2012 (or 6 April 2012 for charitable trusts) the same rule applies to charities and CASCs claiming any charity tax relief or tax exemption administered by HMRC. These include income tax and capital gains tax (for trusts), corporation tax (for companies and other incorporated organisations, and unincorporated associations), inheritance tax, stamp duty, stamp duty land tax and stamp duty reserve tax, as well as VAT charity reliefs and exemptions.

The stated intention of the Finance Act schedule 6 was to reduce the risk of people setting up sham charities to claim tax reliefs, and the risk of charitable/CASC funds and tax reliefs being used for non-charitable/CASC purposes. But the main reason for the legislation was because the European Court of Justice ruled that a donor in one EU state should be eligible for tax reliefs on donations in another EU state, so the EU now needs to ensure that all charities eligible for tax relief anywhere in the EU are legitimate.

As well as meeting the management condition, charities must also meet a registration condition, which means they must comply with any requirement to be registered with the Charity Commission, the Office of the Scottish Charity Regulator, or any comparable registration body in an EU member state, Iceland or Norway.

The management condition requires managers — governing body members, senior managers and others who are involved in claiming tax reliefs or who are able to exert control over how the charity's or CASC's funds are used — to be "fit and proper persons". "Fit and proper" is not defined in the legislation, but HMRC says a person is fit and proper if he or she ensures that funds and tax reliefs are used only for charitable or CASC purposes.

The governing body must be able to show, if required by HM Revenue & Customs to do so, that they "have given proper consideration to the suitability of people they appoint to positions of trust or influence in the organisation, where they are able to exert control over the organisation's finance and tax affairs". There is no defined procedure for this, but HMRC recommends that new "managers" (governing body members, senior managers and others meeting the definition above) are asked to read HMRC's basic guide on the fit and proper person test, and sign the declaration attached to the guide which the organisation should keep. The declaration should not be sent to HMRC unless requested.

If the "manager" has signed and there is no information of concern on the declaration, the organisation can assume the person meets the management condition unless HMRC contacts them. If the person refuses to sign the declaration and refuses to comply with any other attempts by the organisation to verify their suitability as a fit and proper person, the organisation should decide whether that person should be appointed as a "manager" and what financial responsibilities they should be given. If the person signs the declaration but adds information of concern in the 'additional information' box, the organisation will need to consider that information and decide whether to seek advice from HMRC on what to do.

HMRC does not need to be notified of all "managers". When a charity first registers with HMRC on form ChA1 or a CASC registers on form CASC(A1), the authorised official (the person within the charity or CASC notified to HMRC as authorised to deal with tax affairs, make gift aid or other repayment claims and, where necessary, sign and submit tax returns) and between two and four responsible persons, who will generally be members of the governing body, must be named. The authorised official and responsible persons must sign the form to confirm they have read the HMRC fit and proper persons guidance. Authorised officials or responsible persons appointed subsequently must also confirm on form ChV1 that they have read the guidance. The checks carried out by HMRC will depend on the level of control the person has over how charity funds are used, and whether the person has a history of, for example, tax-related fraud.

A nominee is a person or organisation outside the charity or CASC, who is authorised to submit gift aid or other repayment claims. Nominees are not "managers", but HMRC needs to be notified if a nominee is appointed or changed.

When senior managers are employed it may be sensible to make it a condition of employment that the employee must be and remain a fit and proper person, and to reserve the right to terminate the contract if HMRC makes a declaration that they are not.

Unless a charity is registering with HMRC to claim repayment of tax under gift aid or other tax repayment on form R68, there is generally no need to complete form ChA1 to claim other tax reliefs or exemptions.

Where charities are eligible for VAT zero rating (for example on fundraising materials, and some building works), suppliers may ask for confirmation that HMRC accepts the organisation as a charity. HMRC has advised that charities can use HMRC's letter confirming charitable status, with code CTY001 at the bottom, for this purpose.

HMRC's guidance on the definition of charity for the purposes of tax reliefs and tax exemptions, the fit and proper persons test and registering with HMRC for gift aid or other tax reliefs is at A short summary of the changes, issued on 14 March 2012, is at

The Finance Act 2010 schedule 6 is at
The orders extending the definition of charity to all relevant tax reliefs are at and


Added 1/3/12. This information updates s.56.8.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
If a UK charity makes charitable payments abroad, it is subject to special requirements of the Charity Commission (see Charities working internationally and Protecting charities from harm) and general rules on the prevention of money laundering, as well as the tax requirement that payments made to bodies outside the UK only count as qualifying expenditure eligible for tax relief if the trustees have taken steps to ensure that the payment will be applied for purposes which would be charitable in the UK.

In the past, the trustees had to take such steps "as were reasonable in all the circumstances". The Finance Act 2010 s.32 has gone beyond this, requiring the trustees to take such steps "as HMRC considers reasonable in the circumstances". HMRC published in August 2011 revised guidance on the factors it will take into account when considering what is reasonable.

The charity trustees must be able to describe to HMRC Charities the steps they take, explain how those steps ensure charitable application of funds, demonstrate that those steps were reasonable and produce evidence that the steps were, in fact, taken. When considering whether those steps were reasonable in the circumstances, HMRC will consider the charity's knowledge of the overseas body, its previous relations with the overseas body, the past history of the overseas body, and the amounts given in both absolute and relative terms.

Trustees may be asked to provide information about the person(s) to whom the payment was given, the charitable purpose for which it was given, the guarantees or assurances given by the overseas body that the payment would be applied for the purpose for which it was given, steps taken by the trustees to ensure the payment would in fact be applied for charitable purposes, and follow-up action taken by the trustees to confirm that payments were applied properly.

Without adequate evidence, HMRC may not be able to accept the expenditure as charitable expenditure. This could give rise to a liability to tax. Case studies in the guidance illustrate that for small one-off grants to an organisation known to the UK charity, an exchange of correspondence may be adequate, but for payments to unknown organisations, or for larger or longer-term projects, much more detailed initial information, formal agreements, and detailed monitoring and reporting will be required.

The guidance is on the HMRC website via

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