I was interested to see that OSCR, Scotland’s charity watchdog, has authorised Scotland’s 23,500 charities and voluntary organisations to take an active role in the independence debate if they wish.

One issue that is important to the charity sector is tax.  Charities for the most part do not pay tax.  Another important issue for the charity sector is administration and in particular when applying to become a charity.

It will be a surprise to many that just because a charity is registered with OSCR it is not automatically entitled to the various applicable tax reliefs.  A charity has to make a separate application to HMRC.

This causes two complications.  Charity law in Scotland differs from that of the rest of the UK.   For example Scotland’s list of “charitable purposes” is different. That is the first complication.

The second complication is that HMRC apply English and Welsh charity law principles.  This means that there is potentially less work for let’s say an English registered charity, as its original application to its Charity Commission was based on English and Welsh legal principles. A Scottish charity has to also ensure its application to HMRC meets English and Welsh charity law.

It this a huge issue? No.  Is it an issue that can cause problems?  Yes.  Was there a simple solution?  Of course there was.

The simple solution was if a charity is recognised by OSCR it should automatically be recognised by HMRC.  This was a matter I and others argued for before the Calman Commission.  Tax simplification is often talked about but rarely achieved.  This was an obvious opportunity.

How did I get on I hear you ask?  Not only did Calman not agree to this relatively simple measure but recommended that that some parts of Scottish charity law should be re-reserved.

The Scotland Act 2012 did not in fact re-reserve this area of responsibility in whole or even part.  I suspect that the main reason for this was how this would have looked at this particularly politically sensitive time.   The Scotland Act did in fact do nothing on this particular matter.

Possibly something for charities in Scotland to reflect on.

I would recommend this book to any solicitor in Scotland that deals with trusts.  Rennie Galbraith has produced a much needed second edition of his drafting guide.  It is published by W.Green.

I particularly liked the section on the use of Scottish terminology and the influence of English law on Scottish trust law.

“The influence of English law and practice of trust is still extremely prevalent today and certainly at a more than superficial level.   The reasons for this do not reflect well on the Scottish legal profession, those responsible for teaching the profession or those responsible for Scottish legislation.  English terminology abounds and, as a result principally of “English” legislation, which refers to “settlors” rather than “trusters” and “trusts with interests in possession” rather than “liferent trusts”.  The vast bank and array of trust taxation law tends to use English terminology.  Indeed, the trust law relating to charities could be described as almost a complete transplant of English law to the law of charities in Scotland”.

Let’s start with Gordon Brown’s comments and in particular his claim that devolving tax and fiscal powers to the Scottish Parliament automatically means a “race to the bottom” for tax rates and in particular business tax rates.  There are a number of problems with this statement.  I will simply point out two.  Tax competition already exists.  Not just within the European Union but throughout the world.  Then there is the fact that the underlying law, for example tax reliefs, are just as important as tax rates to business.  Creating a Scottish tax system is also a once in a generation chance to create a simpler and more progressive tax system.  This opportunity is not available to the UK.  Evidence that the present Scottish Government is already putting this opportunity into practice is shown by its excellent consultation on a Land and Buildings Transaction Tax.  My earlier blog on this can be found here. 

Again on tax powers for the Scottish Parliament.  I was disappointed, but sadly not surprised, to see another patronising picture accompanying an article in Tax Adviser on the subject of the tax powers being devolved to the Scottish Parliament.  First we had a man in a kilt holding a whisky bottle and this month a scene from the movie Braveheart.    

Now to some incredible news.  HM Treasury is going to employ someone in Scotland.  I wonder if this has anything to with a certain referendum.  Of course it does.  An article on this from the BBC news website can be found here.  I did find it amusing that the position ends shortly after the proposed referendum date.  I should not be so cynical.  It is good that HM Treasury is going to try and find someone to appease the natives.  I suspect they have run out of gunboats. 

Now to HMRC.  HMRC is clearly under strain.  In addition to having to deal with numerous devolution issues its budget is being reduced by 15% whilst having to increase tax revenues brought in by compliance activity by £7bn per year by 2014/15.  Not surprisingly HMRC staff have begun “working to rule” to highlight ‘problems caused by the job and budget cuts. 

I was also interested to see that HMRC has published a draft code of governance for resolving tax disputes.  This follows the controversy surrounding some corporate tax disputes of which it was accused of agreeing over-generous resolutions.  An article on this issue can be found here.  

Clearly the UK Government is keen to show it is clamping down on tax evasion.  HMRC has paid out more than £1m in rewards to tax evasion informants since the start of the financial crisis.  An article on this can be found here.  And just to reinforce the point HMRC has published its rogues gallery of tax evaders and fraudsters.  An article on this from the BBC news website can be found here.

Now to an issue I have blogged on recently.  The Office of the Scottish Charity Regulator is reportedly to investigate 50 private schools to see if they meet the “benefit to the public” criteria in order to maintain their charitable status.  An article on this from the Sunday Herald can be found here.  This is an issue that still needs to properly debated.     

Now to the strange world of caravans and an article from the Herald.  It seems that a little-known tax loophole is set to cost Scotland’s councils millions of pounds a year in revenue.  Each caravan in a caravan park can apply for rates relief, which in turn cuts the overall bill for the park considerably.  It seems that few people knew about this loophole until the owners of caravans in the Rosneath Castle Caravan Park, near Helensburgh, first began using it. The 300 caravan owners at the park have now bombarded the Clydebank business ratings assessors’ office with letters and phone calls, each seeking to save a few hundred pounds per year in council rates.  The article from the Herald can be found here. 

Now to the USA and news that the Democrats are split over estate tax reform.  Democratic Party members of the US Senate have rejected President Obama’s proposal for a 45% top rate of federal estate tax on individual estates worth more than $3.5m.  The tax will rise sharply at the end of this year if Congress fails to agree on reform.  An article on this from Bloomberg can be found here.

Tax is also an issue in the Presidential election.  The Democrats have succeeded in turning the finances of Republican presidential candidate Mitt Romney into a lead news story.  Pressure is growing on Romney to reveal tax returns.  There are accusations that he failed to disclose a Swiss bank account, and even that he participated in the US Internal Revenue Service’s 2009 offshore tax amnesty.  An article on this from Forbes can be found here.

Let’s finish with an old favourite.  It seems that there have been some financial transaction tax stirrings in both Korea and France.  In order to bring the taxation of derivatives in line with other earned income and introduce another revenue source, the Korean Government has announced plans to impose a transaction tax on index options and futures.  France has also partially implanted its own financial transaction tax.  Although a small start, covering only shares in larger companies, and at 0.2%, it’s still lower than UK stamp duty on which it is modelled. Articles on the Korean proposal can be found here and the French proposal here.

Have a good weekend.

Always a bit worrying when both sides rush to claim victory.

The view of the Charity Commission of England & Wales can be found here.

The view of the Independent Schools Council can be found here.

The Upper Tax Tribunal ruled that private fee-paying schools can qualify as charities if their trustees offer poor students more than “token” help with fees.

The lack of clarity by the Tribunal and the reaction of each side shows that this is not the end of the matter.

A similar debate is taking place in Scotland between the Office of the Scottish Charity Regulator and the Scottish Council of Independent Schools.