The Fit and Proper Persons Test

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01 June 2011

The 'fit and proper persons' test introduced last year caused some concern amongst charities, particularly in relation to its scope and potentially wide application to 'managers'. HMRC issued new guidance on the application of the test earlier this year and have recently reported that it appears to be working well in practice.

Finance Act 2010 introduced a new definition of charity for tax purposes, pursuant to which certain criteria must be met in order for a charity to obtain tax reliefs. The definition currently only applies to gift aid but it is intended that it will be extended to other tax reliefs in due course.    

One of these criteria is the 'management condition', under which all of the charity's managers are required to be 'fit and proper persons'. When the test was first introduced, it was not very clear what 'fit and proper' meant in this context; it is not defined in the legislation and HMRC's guidance raised a number of queries. The revised guidance, which can be found on the HMRC website, makes the following main points:

  • HMRC assumes that all people appointed by charities are fit and proper persons unless they hold information to show otherwise. Provided charities take appropriate steps on appointing personnel then they may assume that they meet the management condition unless, exceptionally, they are challenged by HMRC

  • A charity's tax reliefs and exemptions will not be withdrawn during an enquiry as to whether the management condition is met, however, HMRC may decide not to make repayments of tax during an enquiry, depending on the circumstances

  • HMRC may exercise its discretion to allow relief even where the management condition has been breached, where a charity can show it made a genuine mistake and there has been no misuse of charity tax reliefs

  • HMRC takes the general view that charities will have given proper consideration to the suitability of their managers to act in such a capacity and that they are therefore fit and proper persons

'Managers' are defined as the persons having the general control and management of the administration of the charity. The guidance specifies that this does not only include the trustees of the charity, but also anyone who has control over expenditure or determines how the charity's funds are spent. This could include, for example, the Treasurer and/or Secretary of a small charity and certain of the employees of a larger charity.

HMRC recommend that all charities ask managers to read their basic helpsheet and sign a declaration. If a charity does this, keeps the declaration for four years, and notifies HMRC if the manager is a trustee or the authorised official (i.e. authorised to deal with HMRC in respect of the charity's tax affairs) then the charity can assume it meets the management condition.

Broadly, although the test appears to introduce an extra level of administration for charities, the basic idea is to prevent fraudsters controlling charity monies (and to introduce a level of control over tax reliefs available in respect of overseas charities). Charities should in any event take precautions over who they appoint as trustees or other managers, and in practice the fit and proper persons test will nearly always be met. This is reflected in HMRC's recent comment that the test is working well in practice despite concerns having been raised on its introduction.

For further information, please contact Charles Wyld on (0)117 902 2773 or email or Nicola Manclark on (0)117 902 2743 or email

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