Life & Culture

High cost of serving as a Jewish charity trustee

The risks to trustees are not theoretical but real


Our community is justifiably proud of its diverse and far-reaching phil-anthropy. The lifeblood of this thriving industry is the tireless input by the trustees at the helm of each charity. Unfortunately the complex and often-misunderstood charity tax rules can mean these trustees may be saddled with a lot more than they bargained for. This is particularly true for trustees of UK charities that make donations overseas to Israeli or other causes.

In order for payments overseas to qualify as charitable expenditure (and therefore not result in a tax charge), the law states trustees must be able to show they have done what is reasonable in the circumstances to ensure the payment will be applied for charitable purposes. Critically, the legislation states that HMRC can decide what is reasonable in the circumstances.

Getting it wrong can be incredibly costly. Failure to satisfy HMRC that appropriate governance is undertaken can result in a significant tax charge. This may be imposed, in the very worst-case scenario, on the trustees themselves.

Unfortunately, given the subjectivity introduced into the legislation by allowing HMRC to decide what is reasonable, the question worried trustees are asking is “how do we know what to do?”

HMRC provides a measure of guidance in its Detailed Notes for Charities (chapter nine), which deals specifically with trustee obligations in respect of payments to overseas bodies []. Unfortunately, the guidance, while relatively comprehensive, nevertheless talks only in broad and general terms.

In recent years HMRC has targeted a number of Jewish charities and challenged their governance procedures. In our experience, HMRC’s interpretation of what is reasonable under the circumstances sets the benchmark extremely high — some might say unrealistically high — particularly for small charities with a volunteer workforce or those “UK Friends of” charities whose contributions form a small part of the overall overseas charity budget.

HMRC’s current view is that it is not enough for the trustees of a UK charity making overseas payments to rely on their close relationship with the overseas charity to fulfil their obligations vis à vis the legislation.

Nor is it acceptable for the trustees to rely on third-party entities, including government bodies, to provide the necessary verification of the charity and the use of the funds.

To avoid a tax charge on the transferred monies, the trustees must be able to demonstrate with contemporaneous documentary evidence and a sufficiently comprehensive audit trail that they themselves have undertaken the necessary checks in respect of their due diligence and monitoring obligations.

In practice, this means the trustees need to be rigorous in their record-keeping, to comply with HMRC’s high expectations.

These will depend on the size of the donations and the nature and purpose of the donations.

Examples of the sort of records HMRC is looking for include the following: taking minutes of all funding decisions with reference to their own funding protocols; notes of all significant conversations with the overseas charity; preparing evidence of a critical analysis of the overseas project requiring funding and personally validating the charitable purpose of the funding.

HMRC publicity and education around this subject is currently non-existent.

The heavy burden of firstly being aware of this important but small piece of legislation and secondly ensuring the correct application falls squarely on the shoulders of the trustees themselves.

HMRC’s increased activity in this area and the number of new inquiries we are seeing means the risks highlighted above are not merely theoretical but are a real and present danger to the community as a whole.


Talia Greenbaum is senior tax manager at BDO LLP,

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