Introduction of a charity exemption from the new Diverted Profits Tax has been welcomed by the group which campaigned for the change.

The Diverted Profits Tax, announced in last year’s Autumn Statement, aims to address arrangements used by large groups such as multinational enterprises that result in reductions in their tax liability. Concerns arose over whether charities within charitable groups could be captured by the legislation.

The tax was included as part of the Finance Bill 2015, published yesterday. The Charity Tax Group had been in discussions with HMRC to ensure charities are excluded from the tax, and today welcomed inclusion of a specific exemption for payments to charities.

CTG chair John Hemming said he is pleased the government has listened to the group’s concerns.

“While this tax was not designed to target charities, this is a classic example of charities being unwittingly penalised by wider tax legislation. If there had not been a change there was a danger that this tax would have made it impossible for charities to use charity trading subsidiaries.”

The Finance Bill also confirms the introduction of VAT refunds for some charities including air ambulances and hospices, and enables regulations to make it easier to operate Gift Aid through an intermediary.

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