The Chancellor has today published the Autumn Budget 2017. All of the Budget documents can be found here.
CTG Chairman John Hemming commented:
“We are pleased that after several rounds of consultation HMRC has accepted CTG’s recommendation that the existing three thresholds for the Gift Aid donor benefit “relevant value test” should be reduced to two thresholds with a 5% rate on parts of donations in excess of £100 (noting the total value of the benefit that a donor can receive remains at £2,500.). This will help to avoid the problems of the cliff-edge effect that many charities currently face (and which can lead them to not claim Gift Aid at all). We now look forward to co-ordinating the sector’s efforts to revise the guidance on the donor benefit rules.
“We welcome news that the VAT registration threshold will not be decreased at this time. CTG looks forward to contributing to the planned consultation process in which we will expand on our recommendations to the OTS for re-designs to the threshold to protect charities. This could include excluding zero rated sales and allowing charities to share resources, such as staff and IT, with their trading subsidiaries, without any charges for this counting towards the VAT registration threshold.
“The extension of VAT refunds to Police Scotland reinforces the fact that there is no technical obstacle to VAT refunds, the only considerations are political will and cost. It is encouraging that the Government is extending reliefs for frontline activities of accident rescue charities (such as those that provide emergency paramedics and doctors) and this again highlights the importance of creating a level VAT playing field for charities.
“We await further details on the implications of business rates retention policies for discretionary rate relief for charities, as well as details on possible adaptations to the Apprenticeship Levy, which we hope will result in its extension to volunteer expenses. We will also continue to work with officials on MTD for VAT, as part of the pilot stage next year. We also await details of the planned consultation on the Community Infrastructure Levy (CIL) and will be making a strong case for the retention of a charity exemption”.
Gift Aid donor benefit rules – Following the review of the Gift Aid donor benefit rules, to simplify the rules for charities the current three monetary thresholds will be reduced to two, while all existing extra-statutory concessions will be legislated (which relate to split payments, literature as having inconsequential value, averaging rule and lifetime benefits). Changes will come into effect from April 2019.
Under the new limits the benefit threshold for the first £100 of the donation will remain at 25% of the amount of the donation. For larger donations charities can offer an additional benefit to donors, up to 5% of the amount of the donation that exceeds £100. Some examples are provided in the table below. The total value of the benefit that a donor can receive remains at £2,500.
CTG welcomes this announcement which follows the proposal in our response to the consultation. Charities should benefit from the “splicing” effect which will reduce the cliff edge effect for larger donations, while protecting the value of the benefit allowance for smaller charities.
|Size of donation (£)||Existing relevant value test||Planned relevant value test from April 2019|
|£50,000.00||£2,500.00 (cap)||£2,500.00 (cap)|
VAT registration threshold – In response to the Office of Tax Simplification’s report Value Added Tax: Routes to Simplification, the government will consult on the design of the threshold, and in the meantime will maintain it at the current level of £85,000 for two years from April 2018.
- Access to VAT refunds – The Government will make the following changes to VAT refunds:
- Accident Rescue Charities Grant Scheme – A grant will be provided to help accident rescue charities meet the cost of normally irrecoverable VAT. CTG looks forward to further detail on how this will apply in practice and which charities will be eligible to apply for the scheme.
- Combined Authorities – Through Finance Bill 2017-18, legislation will be amended to ensure UK Combined Authorities and certain fire services in England and Wales will be eligible for VAT refunds.
- Scottish Police and Fire Service VAT – Through Finance Bill 2017-18, legislation will be amended to ensure that Scottish Police and Fire Services will be eligible for VAT refunds
- Review of VAT rates and exemptions: The Chancellor has responded to the OTS VAT review proposals. Recommendation 4. is important and notes: “The Government’s ability to amend the scope of the various rates and exemptions is limited to some extent by EU law at present. It is clear that the current rates structure is the root cause of much of the complexity in the VAT system, imposing administrative burdens on businesses and often confusing consumers. I agree that there is merit in a review of the current system of VAT rates and reliefs in the longer term, and HMRC and HM Treasury officials will continue to engage with the OTS on this subject”.
Making Tax Digital (MTD)
- MTD for VAT: As announced in July 2017 and legislated for in the Finance (No. 2) Act 2017, no business will be mandated to use MTD until April 2019. Only those with turnover above the VAT threshold will be mandated at that point, and then only for VAT obligations. The scope of MTD will not be widened before the system has been shown to work well, and not before April 2020 at the earliest. Charities and their subsidiaries will be required to comply and further details on what this means in practice can be found here. CTG will also be working with HMRC officials throughout the pilot stage next year to ensure the system works for charities.
- Employer provided living accommodation – The planned consultation on this tax exemption, which is very important to a number of charities (particularly churches, heritage organisations, universities, hospices and schools) was not announced, although we understand from HM Treasury officials that this is still likely to be published in Spring 2018.
- Wages and allowances: The National Living Wage will be increased to £7.83/hour from April 2018, with the personal income tax allowance to rise to £11,850 and the higher-rate threshold to rise to £46,350 from April 2018.
- Benefits in kind: electric vehicles – From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.
- Taxation of employee business expenses – Following the call for evidence published in March 2017, the government will make several changes to the taxation of employee expenses:
- Self-funded training – The government will consult in 2018 on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs
- Subsistence benchmark scale rates – To reduce the burden on employers, from April 2019 they will no longer be required to check receipts when reimbursing employees for subsistence using benchmark scale rates. The existing concessionary accommodation and subsistence overseas scale rates will be placed on a statutory basis, to provide greater certainty for businesses.
- Guidance and claims process for employee expenses – HMRC will work with external stakeholders to improve the guidance on employee expenses, particularly on travel and subsistence and the process for claiming tax relief on non-reimbursed employment expenses
- Life assurance and overseas pension schemes – From April 2019, tax relief for employer premiums paid into life assurance products or certain overseas pension schemes will be modernised to cover policies when an employee nominates an individual or registered charity to be their beneficiary.
- Employment status discussion paper – The Government will publish a discussion paper as part of the response to Matthew Taylor’s review of employment practices in the modern economy, exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer. The Government recognises that this is an
important and complex issue, and so will work with stakeholders to ensure that any potential changes are considered carefully.
- Review: The Government will continue to work with employers on how the Apprenticeship Levy can be spent so that the levy works effectively and flexibly for industry, and supports productivity across the country. CTG will continue to call for the Levy to be extended to volunteer expenses so that it can be better targeted and more effective for charities.
Research and development expenditure credit (RDEC)
- Increase– The Government will increase the rate of the R&D expenditure credit from 11% to 12% with effect from 1 January 2018. To provide businesses with the confdence to make R&D investment decisions, the government will also introduce a new Advanced Clearance Service for R&D expenditure credit claims. CTG has continued to express disappointment that the Government has not reversed its decision to exclude non-university charities from eligibility for RDEC.
- Rates retention schemes – The Government has agreed a pilot of 100% business rates retention in London in 2018-19. The Greater London Authority (GLA) and London boroughs will come together to form a pool and invest revenue growth strategically on a pan-London basis. The government will also continue to pilot additional business rates retention for councils across England. CTG has received assurances that mandatory rates relief will be protected, but there remains concerns about the possible adverse impact on discretionary rates relief, given it will all need to be funded by Local Government. This risk exacerbating the current “postcode lottery” for rates relief.
- Indexation – The Government will bring forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI)
- Revaluation – Increasing the frequency with which the VOA revalues non-domestic properties by moving to revaluations every three years following the next revaluation, currently due in 2022. To enable this, ratepayers will be required to provide regular information to the VOA on who is responsible for business rates and property characteristics including use and rent. The Government will consult on the implementation of these changes in the Spring.
Community Infrastructure Levy
- Consultation – In this year’s Housing White Paper, the government committed to respond to the Community Infrastructure Levy (CIL) Review. DCLG will launch a consultation with detailed proposals on the following measures:
- removing restriction of Section 106 pooling towards a single piece of infrastructure where the local authority has adopted CIL, in certain circumstances such as where the authority is in a low viability area or where significant development is planned on several large strategic sites.
- speeding up the process of setting and revising CIL to make it easier to respond to changes to the market. This will include allowing a more proportionate approach than the requirement for two stages of consultation and providing greater clarity on the appropriate evidence base. This will enable areas to implement a CIL more quickly, making it easier to set a higher ‘zonal CIL’ in areas of high land value uplift, for example around stations
- allowing authorities to set rates which better reflect the uplift in land values between a proposed and existing use. Rather than setting a flat rate for all development of the same type (residential, commercial, etc.), local authorities will have the option of a different rate for different changes in land use (agricultural to residential, commercial to residential, industrial to residential). All the protections for viability from CIL, such as the Examination in Public, will be retained
- changing indexation of CIL rates to house price inflation, rather than build costs. This will reduce the need for authorities to revise charging schedules. This will ensure CILrates keep up with general housing price inflation and if prices fall, rates will fall too, avoiding viability issues
- giving Combined Authorities and planning joint committees with statutory plan-making functions the option to levy a Strategic Infrastructure Tariff (SIT) in future, in the same way that the London Mayoral CIL is providing funding towards Crossrail. The SIT would be additional to CIL and viability would be examined in public. DCLG will consult on whether it should be used to fund both strategic and local infrastructure
- No mention has been made of a review of exemptions, which is welcome, given the value to the charity sector, but the CIL Review team had recommended “no or very few exemptions” for any successor Tariffs, so this needs to be monitored closely. More background is available here.
- Poppy Factories – The Government has committed £4.7 million to modernise the Poppy Factories in Richmond and Edinburgh, to make them fit for purpose and to secure the production of the Poppy, the iconic symbol of National Remembrance, throughout the UK for the next generation.
- Cultural Development Fund – To support the role culture can play in regeneration and local growth, the government will provide £2 million funding to the Department for Digital, Culture, Media and Sport for place-based cultural development.
- Banking fines – The Government has committed a further £36 million of banking fines over the next 3 years to support Armed Forces and Emergency Services charities and other related good causes. This completes the LIBOR Charity Funding scheme, bringing the total of funding committed since 2012 to £773 million.
- NICs Employment Allowance – The government has found evidence of some employers abusing the Employment Allowance to avoid paying the correct amount of NICs, often by using offshore arrangements. To crack down on this, HMRC will require upfront security from employers with a history of avoiding paying NICs in this way. This will take effect from 2018 and raise up to £15 million a year.
- Disguised remuneration – The Government will tackle disguised remuneration avoidance schemes used by close companies – companies with five or fewer participators – by introducing the close companies’ gateway, revised following consultation, and measures to ensure liabilities from the new loan charge are collected from the appropriate person.
- Profit fragmentation – The government will consult in 2018 on the best way to prevent UK traders or professionals from avoiding UK tax by fragmenting their UK income between unrelated entities.
- Intangible fixed assets: related party step-up schemes – The Intangible Fixed Asset rules will be updated with immediate effect, so that a licence between a company and a related party in respect of intellectual property is subject to the market value rule, and to ensure that the tax value of any disposal of a company’s intangible assets is correct, even if the consideration is in something other than cash.
- Depreciatory transactions – The government will remove the 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company. This will ensure that any losses claimed are in line with the actual economic loss to the group. This change will take effect for disposals of shares or securities in a company made on or after 22 November 2017.
- Carried interest – To prevent the avoidance of legislation designed to ensure that asset managers receiving carried interest pay CGT on their full economic gain, the government will remove the transitional commencement provisions with immediate effect.
- Double Taxation Relief – From 22 November 2017 a restriction will be introduced to the relief for foreign tax incurred by an overseas branch of a company, where the company has already received relief overseas for the losses of the branch against profits other than those of the branch. This ensures the company does not get tax relief twice for the same loss. The Double Taxation Relief targeted anti-avoidance rule will also be amended to remove the requirement for HMRC to issue a counteraction notice, and extend the scope to ensure it is effective.
- Double taxation arrangement: multilateral instrument – With effect from the Royal Assent of the Finance (No. 2) Act 2017, the powers giving effect to double taxation arrangements will be amended to allow the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting to be implemented.
- Taxation of trusts: The government made a commitment in its manifesto at the 2017 General Election to tackle the misuse of trusts and reforms are aimed at increasing trust transparency to help tackle the misuse of trusts for tax purposes. The transparency reforms would be consistent with the wider action this government has taken since 2010 around improving disclosure and information to help reduce tax avoidance and evasion. When the consultation is published in 2018 HMRC officials have committed to consultation with stakeholders including charities.
- Fuel duty – Fuel duty will be frozen for an eighth year in 2018-19.
- Insurance Premium Tax – No further increases were announced so it remains at 12%