Tax and VAT

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
- Office of Tax Simplification Launched
- Latest from HMRC
- Gift Aid reform
- VAT
- Irrecoverable VAT
- EU Tax

Office of Tax Simplification Launched

The new Office of Tax Simplification was launched on 20th July 2010 as an independent Office of the Treasury. The aim of the new Office is to provide expert, independent advice to the Government on creating a simpler tax system and the Board will include representation from across both the legal and tax professions.   John Whiting, Tax Policy Director at the Chartered Institute of Taxation, has been appointed to the post of Tax Director; and the Rt Hon Michael Jack, former MP and Financial Secretary to the Treasury 1995-1997 has been appointed as Chair, both on an interim basis. Permanent appointments are to be made in 2011.

The OST has been commissioned by the Chancellor to undertake a Tax Reliefs Review, analysing all the reliefs, allowances and exemptions relating to the tax system. An initial report of the findings is due late autumn 2010, with a final report to follow ahead of the 2011 Budget.  CFDG will be working to ensure that the OST understand the needs of the sector and will take these in to account when producing their report. 

 

Latest from HMRC

June 2010: HMRC have revised their policy on the treatment of pay-per-click (PPC) charity advertising on sponsored links and other associated services. Until now HMRC had taken the view that PPC ammounted to access to a charity website, excluding it from zero-rate of VAT. This view has now been revised and PPC is now regarded by HMRC as advertising supplied to charities, zero-rating will therefore apply.

For more information please read the HMRC Brief 25/10

Finance Act 2010: Following a European Court of Justice judgment, UK charity tax reliefs have been extended to charities in the EU and in Norway and Iceland. Finance Act 2010 includes new rules on the definition of a charity, charitable company and charitable trust following the Government’s announcement at Budget that tax reliefs and exemptions for charities and charitable giving are being extended to certain EU organisations. HMRC have said that for the majority of existing UK charities there will be little impact.

In order to help administer the new rules HMRC has developed two new forms:

  • Form ChA1 - HMRC Charity application form - this is the form that organisations must complete if they want to make claims under the Gift Aid scheme or claim other repayments of tax.

  • Form ChV1 - HMRC Charities variations form - this is the form that organisations that are eligible for UK charity tax reliefs must complete if there are changes to the organisation's contact details, authorised officials, bank details or changes to their nominees.

 

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

20th July 2010
In July 2010 CFDG, CTG, Stewardship, Small Charities Coalition, CLAS and IoF issued a survey to members on the administrative simplification of Gift Aid. This survey was based on proposals from a CTG paper on Gift Aid simplification measures and revealed strong support accross the sector for administrative simplification, and in particular for a movement to database and online systems of recording and filing claims.

PDF Document Gift Aid Simplification Survey Results

June 2010 Budget
The June 2010 Budget announcements included a rise in the personal allowance for people under 65 by £1,000 in April 2011. There may be a negative impact on the revenue from Gift Aid by this increase in personal income tax allowance. However CFDG hopes that this will be offset by wider reform of Gift Aid and is pleased that the Chancellor confirmed that the Government will continue to explore options for reform, including the continuation of the Gift Aid Forum.

15th December 2009
HM Revenue and Customs (HMRC) have published an academic report that looks at the options for reformed higher-rate relief on Gift Aid. The report broadly suggests that redirecting higher-rate tax relief back to charities would be unlikely to deter donors. The report also looks at options for a composite rate of relief, set between the basic and higher tax rate, which charities could claim regardless of which tax rate their donors paid. Unfortunately, however, the report does not look at the implementation or compliance costs for the various options.

Going forward, HMRC and HM Treasury have committed to setting up a forum of third sector representatives to discuss the options for reform. CFDG will be closely involved with these discussions, and we will keep members up to date on their progress.

PDF Document Gift Aid Donor Research: exploring options for higher-rate relief

23rd October 2009
The Gift Aid Coalition (CFDG, Acevo, CAF, CTG, Institute of Fundraising, NCVO and Save the Children) have been lobbying consistently over the past few years for radical structural reform to the Gift Aid system. In line with the Government's stated priorities, we want to increase the take-up of Gift Aid by simplifying the system. We have been lobbying for the opt-out system, in line with HM Treasury's stated interest, but HM Treasury have now said that all options remain on the table. This, after the Government has failed to respond to a number of letters we have sent them over 2009.

The Coalition has therefore written to Stephen Timms, Financial Secretary to the Treasury, expressing our concerns and asking for a clear statement of the Government's intentions on Gift Aid. We also issued a press release to highlight our concerns on a wider platform.

PDF Document Letter to Stephen Timms, 14.10.09

12th March 2008
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

Increase in VAT rate
In the June 2010 Budget the Government announced that the rate of VAT will increase to 20% from 4th January 2011. CTG has estimated that this increase will cost the sector an additional £140million. The impact of this may harm the capacity and resources needed to address the Government's Big Society Agenda.

While the increase in VAT is worrying for the sector, the delay will allow us time to engage with Government in order to find ways of minimising the impact on charities.

CFDG will be working closely with HM Treasury and HMRC on this issue.

VAT on shared services
In the June 2010 budget the Government reconfirmed the previous Government's pledge to work with affected sectors, including charities, to consider options for implementing the EU cost sharing exemption in the autumn. CFDG is pleased with this announcement, which represents one of the key recommendations outlined in our election manifesto. This area is especially important considering the confirmation of a VAT rise to 20% in January 2011.

CFDG will work closely with HM Treasury and HMRC to ensure that our members views are reflected on this issue.

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