Revised HMRC guidance: non-charitable expenditure

HMRC has updated Annex ii of its tax guidance for charities. Annex ii focuses on non-charitable expenditure. Where a charity's income and gains are not spent solely on charitable purposes, the charity's exemption from tax may be restricted. The revised guidance has added the following sections:

1. Guidance on paying individual beneficiaries by bank transfer, cheque and cash payments − when making a payment to an individual beneficiary, trustees should ensure that they comply with the following: 

• Keep original records outlining how they identified an individual's need and confirmed that the individual was eligible for support from the charity at the time of the decision. These records should include meeting minutes, evidence of the individual's identity and copies of any assessments used to determine eligibility; and
• Make payments using regulated banking services where possible by bank transfer to an account held in the beneficiary's name or by cheque with the beneficiary as the payee. Cash payments should only be used in exceptional circumstances and when used, the trustees should record which beneficiary received the payment and that the funds were used for the charity's purposes. 

2. Proportionality − trustees should ensure that they agree to financial assistance that is proportionate to the individual's circumstances and the charity's purposes.

• HMRC has outlined two illustrative examples in the guidance one of which outlines that providing a large grant to an individual who has become unemployed for a short period may be disproportionate.
• A further example indicates that paying for an individual's private medical treatment may be disproportionate where the same treatment is available on the NHS and there is no evidence that private treatment is necessary or that the individual is unable to meet the costs themselves.

3. Record keeping – trustees should ensure that they:

• Create records at the time that decisions are made and should document the evidence considered and the reasons for the decision.