Tax and VAT

Page last updated 01.06.09

Charities operate in a complex tax environment which with one hand provides favourable tax reliefs but with the other hand imposes unfair tax burdens. It is imperative that charities understand tax and the implications it has on the various activities they undertake or they can find themselves facing tax liabilities or missing out on valuable tax reliefs.

CFDG helps charities navigate the complexities of the tax system, keeping you up to date on the latest developments taking place in the sector and enabling you to help shape future government policy by taking part in consultations and campaigns.

 

Contents
- Surveys
- Budget 2009
- Latest from HMRC
- Gift Aid reform
- VAT
- Irrecoverable VAT
- EU Tax

 

Surveys

CFDG is currently running a survey on the Gift Aid Opt Out Scheme, and the Charity Tax Group are running one on Shared Services and VAT. Details can be found on our surveys page.

 

Budget 2009

CFDG's budget briefing and initial budget statement.

It has since come to our attention that the Budget also announced proposals to introduce a personal liability for the senior accounting officers of large companies (SAOs). SAOs will now be required to provide personal certification that their accounting systems are capable of ensuring accuracy in their tax reporting, under the penalty of £15,000 fines. For more information see the briefing from BDO Stoy Hayward.

CFDG made a wide-ranging 2009 Budget submission, encompassing demands for the sector on: Gift Aid; VAT; the Staff Hire Concession; Substantial donors; National Insurance Contributions; Business rates; Trading and sponsorship; pensions; and water rates. Read our press release here. The full text of the budget can be found on the Treasury website.

For briefings on previous budgets and pre-budget reports, see the Budget page.

 

Latest from HMRC

April 09: The first VAT note of 2009, including notices on new and revised publications, the end of paper returns, payment by credit or debit card, charges for membership subscription, time limits for assessments and claims, option to tax land and property, taxable supplies to services to the EC, provision of accountancy services, bookkeeping or tax advisce and bringing goods into the EC.

April 09: HMRC have a new appeals process.

April 09 : HMRC have published an updated list of tax legislation.

March 09 : From 6th April employers are reminded that they must use the new A4 P45s.

March 09: HMRC are introducing a new system of penalties for errors made in tax-returns for accounting periods starting from 1st April 2008, due to filed on or after 1st April 2009. In future, no penalty will be issued for a mistake if ‘reasonable care’ has been taken. The new scheme will cover income tax (including self assessment), VAT, employers paying PAYE, National Insurance contributions, corporation tax, capital gains tax and the construction industry scheme. For more information: www.hmrc.gov.uk/about/new-penalties/index.htm.

March 09:charities can claim gift aid six years after a donation is made, but if they want to claim transitional relief the claim has to be made within two years. In addition, HMRC have said that from April 2010 the six-year window for claims will be reduced to four years. Gift aid claims should therefore be brought up to date as soon as possible, and if the standard wording on your Declaration form refers to six years this (and any associated procedures) will need to change to refer to four years in 12 months.

 

Gift Aid Reform

In their response to the Gift Aid consultation the Government committed to providing the transitional relief lobbying for by CFDG, at a rate of 22% for the next three years, worth an estimated £300 million to the sector. Royal assent has been received for the finance bill, and HMRC is now authorized to pay transitional relief on all donations received on or after 6 April 2008. Charities entitled to the relief will have it paid automatically, and do not have to do anything themselves.
PDF Document For more detail, see our briefing

24th July 2006
As you will be aware, new Gift Aid rules covering donations that attract the right of free entry to charity property took effect on 6 April 2006. HMRC have sent a letter to various charities highlighting the fact that the new Gift Aid legislation is not being adhered to and consequently some charities may be claiming repayments in respect of sums not eligible for Gift Aid.
Download PDF  Download the letter

 

VAT

Staff Hire Concession
In the 2008 budget the chancellor announced a withdrawal of the staff hire concession. Under the current concessionary arrangements employment businesses are allowed to exclude the wages element from the supplies they make, and to account for VAT solely on their margin. This concession affects employment bureaux who use the existing concessionary arrangements and any of their customers who are not able to fully recover the VAT charged to them, including charities.

CFDG is liasing with the Recruitment and Employment Confederation (REC) in considering options for organisations caught by this change in the legislation, and will keep members informed of any progress.

Download Word Document  VAT information sheet 0309 (March 2009)
Download PDF  Review of the staff hire concession: Summary of responses

Internet link VAT staff hire case: Accenture vs. HMRC: whether the supply of personnel is liable to the concession

 

VAT Partial Exemption
At the end of 2008 HMRC held a consultation on VAT Partial Exemption and the Captial Goods Scheme, to which CFDG responded on behalf of members. We are pleased to see that HMRC have now made four changes to the standard method, all of which follow the recommendations in the CFDG response. You can read our press release about the changes here, and the details of the changes can be found in the briefing paper and VAT Information Sheet below. This is the first stage of a three-year simplification plan, and HMRC will now be looking at the de minimus rules and the combined Partial Exemtpion/ Businesses Non Business method.

Download Word Document HMRC Brief 19/09
Download Word Document VAT Information Sheet 04/09

 

Reverse charge for mobile phones and computer chips
HMRC brief 28/09 explains that the Government has applied to the EU for a continuation of the UK’s reverse charge on mobile phones and computer chips. This is a derogation from EU law, and the EU have in principle agreed to continue the derogation. However, there may be a gap between the expiration of the current derogation and its renewal, although the new agreement is expected to apply retrospectively to cover this gap. If there is a temporary gap in the derogation, businesses that make or receive business-to-business supplies of mobile phones and/or computer chips with a value of £5,000 or more should continue to apply the reverse charge. Suppliers should also continue to complete and submit Reverse Charge Sales lists for these supplies. Businesses that apply the reverse charge and comply with UK law will not be subject to any penalties as a consequence of any temporary gap in the EU derogation. If a business does not apply the reverse charge during any temporary gap in the derogation, it may be liable to pay HMRC any tax lost or to have its input tax denied.
Internet linkwww.hmrc.gov.uk/briefs/vat/brief2809.htm

 

Leisure Trusts
There is also a new brief for Leisure Trusts providing all-inclusive membership schemes.  Previously HMRC took the view that where a leisure pass provides unlimited access to a range of standard-rated and exempt leisure facilities the pass charge was standard-rated. HMRC now consider the pass to be a single supply of the predominant element from the viewpoint of the typical customer. In most leisure trust situations the predominant element for the typical customer will be the exempt leisure facilities and so the pass will be exempt. Affected businesses are instructed to make changes from 1 April 2009. Affected businesses may also be able to make a claim for overpaid VAT.
Internet link www.hmrc.gov.uk/briefs/vat/brief1309.htm

 

For recent VAT cases see here.

 

Resources
- VAT Made Simple, written by Sayer Vincent in association with CFDG (you will need to log in to follow this link)
- How to claim back VAT on your advertising, an article from Third Sector.

 

Irrecoverable VAT

The Charity Tax Group (CTG) has a parliamentary campaign on VAT which has received widespread support from the charity sector as well as strong cross party endorsement.

CTG are currently looking at the Danish Government's refund scheme, and are working with other European charities (including a large number of foundations) and umbrella groups to look for a Europe-wide solution to irrecoverable VAT.

It is always worth lobbying your MP on this issue by writing to them. You can use our template letter, which highlights why VAT is a problem for charities and the activities your MP can undertake to further raise the profile of this issue.

A petition, now closed, on the Prime Minister's website called for an end to the requirement for voluntary sector groups to pay VAT. The petition collected 9,446 signatures.

 

EU Tax

Withholding tax – reclaims

EU member states will be in breach of the EU Treaty if they tax the income of foreign investors operating in their state at a higher rate than they tax domestic investors, solely on the grounds of non-residence.  Charities with significant income from EU investments held either by the charity or its pension fund are being advised to consider submitting protective claims in the relevant states for all years that are within local time limits.
More details

 

Cross-border Giving

Update: Austrians to change regulations in line with ECJ decision
Under Austrian tax law, donations to certain institutions established in Austria such as universities, art colleges and the Academy of Science, may be recognised and deducted as operating expenses by any person making such donations, while donations to comparable institutions in other countries may not be so deducted. Moreover, the donations are only recognised as deductible expenses if the related activities are carried out for the benefit of Austrian science or the Austrian economy.

In the light of the ECJ’s conclusions in Persche, the European Commission has formally requested that Austria change its tax provisions to end this discrimination, citing free movement of capital and freedom to provide services as justification for its action.

Update: 27th January 2009
The Grand Chamber of the ECJ has now given its judegment in Persche, on whether or not a gift (either in cash or in kind) to a charity in another EU member state is tax-deductible by the donor in respect of domestic tax liability. The Charity Tax Group reports that, ‘The Court has decided that such gifts come within the provisions of the EC Treaty relating to the free movement of capital and that Article 56 EC prevents any blanket ban on tax-deductions for donations to non-domestic charities. However, the onus is on the taxpayer to show that, in such circumstances, the gift is made to a body that would satisfy the domestic law on charitable purposes: for example, a gift to a foreign political party (even if it was established as a charitable foundation) should not be tax-deductible in the United Kingdom because, under English and Scots charity law, a political party may not register as a charity.

December 2008
‘Whether this judgment has much impact on charities in the UK will depend on various factors:  Will it encourage donations to UK charities from people resident in other EU countries?  Will it encourage those living in the UK to give to overseas charities rather than domestic ones?  How will the system operate given that basic rate tax relief on donations to UK charities goes to the charity rather than the donor?  Will there be any subsequent pressure from the European Commission to harmonise the system of tax relief which could result in all the tax relief being shifted to the donor?  We will be following developments closely and will keep you updated.

The European Advocate General has published his opinion on two European cases concerning cross-border giving. In the first, Staufer (Centro di Musicologia Walter Stauffer v Finanzamt für Korperschaften (ECJ C-386/04)), the European Court of Justice (ECJ) ruled that a non-resident charity had a right to benefit from the same tax exemption as a resident charity. The second, Perche (Persche v Finanzamt Lüdenscheid (ECJ C-318/07)), is currently before the ECJ, and it concerns a German resident appealing against the German tax authorities who are denying him tax relief on a donation in kind made to a charity based in Portugal.

The Advocate General’s Opinion is that donations by individuals resident in one member state to organisations based in and recognised as charitable in another constitute a movement of capital within the meaning of Article 56 of the EC Treaty. It is contrary to Articles 56 and 58 not to allow a taxpayer the opportunity to prove that an organisation based in and recognised as charitable in another member state would fulfil the charitable requirements applying in the taxpayer's own member state. In short, if Mr Persche is able to prove to his national tax authorities that the gifts were made to a legitimate charity he must be entitled to the same tax relief he would get if the charity he helped were based in Germany. It remains to be seen whether or not the Court will agree with the Advocate General.