CTG Newsletter – 14 August 2019
Charity Tax Group updates
Review of the year so far
CTG’s work often takes place behind the scenes, so we recently published an update on our policy work on behalf of members in recent months. For those readers that have only recent subscribed to the newsletter, we have prepared a summary of the main developments so far in 2019. As with last year, it has been a very busy period, with CTG playing an active role in shaping policy development and representing charities interest to HMRC and HM Treasury.
- February: Following confirmation that the UK now has the power to equalise the VAT treatment of e-publications with printed publications (zero rated), CTG co-ordinated a meeting with HM Treasury and HMRC to discuss how charities currently use e-publications and how they might do so in the future. Although the Government has declined to make changes so far, this was a constructive meeting and the implications for charities will certainly be considered by officials, if and when the UK changes the VAT rate and definitions of e-publications are decided. Continuing discussions that commenced in 2018, CTG representatives met HMRC officials for continued discussions on the VAT treatment of online advertising. Following representations from CTG, HMRC is seeking further internal legal opinion to inform their thinking on the correct VAT treatment and we hope to receive a full response in the autumn. February also saw the Finance Bill 2018-19 receive Royal Assent – the legislation implemented a number of provisions that were announced in recent Budgets including changes to the Gift Aid donor benefit thresholds for the “relevant value test” and an increase in the small trading exemption thresholds – both measures proposed by CTG. Other interesting developments in February included confirmation that the Government’s plans to maintain the VAT registration threshold at its current level of £85,000 until March 2022. In addition, the Charity SORP making body released guidance on the accounting for corporate gift aid payments made by a trading company to its charitable parent. Lastly, the Scottish Government published the Barclay Implementation Advisory Group’s Final Report on business rates, confirming that mainstream independent schools will no longer be eligible to apply for mandatory charitable rate relief.
- March: Following discussions with HMRC on the new £20 de minimis limit for annual letters to donors (for charities operating methods A or B of the Retail Gift Aid scheme), CTG published a number of worked examples and FAQs for members. March also saw the Chancellor present the Spring Statement confirming the Government intention to launch a full three-year Spending Review (although this is to be replaced by a fast tracked one-year Spending Review – see below). The Statement included welcome confirmation of a light touch approach to penalties on MTD in the first year and announcement of future Government plans including: consultation on regulations to reform the Employment Allowance (since published an open for consultation – see below); a planned call for evidence on simplifying VAT Partial Exemption and the Capital Goods Scheme (also now published) and a planned review of the Social Investment Tax Relief to date (which opened in May and has now closed). Following a consultation process with stakeholders including CTG’s Gift Aid working group, JustGiving announced changes to its funding model.
- April: Over 150 charity representatives and advisers attended CTG’s Annual Tax Conference. The Conference included a keynote speech from the Exchequer Secretary to the Treasury and updates from expert speakers on issues as varied as the future of Gift Aid, business rates, off-payroll working, VAT cases and Making Tax Digital. CTG also outlined plans for an important new VAT research project, as part its Annual Review 2018-19, which highlights the organisation’s work “Influencing the future of charity taxation”. CTG made sure that charities were aware of a range of tax changes and deadlines in April 2019. This included changes to the Gift Aid Small Donations Scheme (new £30 limit for donations), Gift Aid Donor Benefits rules (new relevant value test), operation of Retail Gift Aid (new £20 de minimis limit) and the small trading exemption (with the threshold increased to £85,000). All of these changes had been proposed by CTG and presented to the Exchequer Secretary to the Treasury, at the 2018 Tax Conference. April saw the start date for Making Tax Digital VAT reporting requirements for all charities not deferred and CTG continued to work with HMRC officials on changes to the VAT guidance to support charities. CTG also attended a roundtable meeting with HM Treasury following the publication of a consultation on the implementation of the Fifth Money Laundering Directive (5MLD), which has important implications for some charities.
- May: Following discussions between CTG and HMRC a new section in the Making Tax Digital VAT guidance was introduced on charity fundraising events, relaxing the digital record keeping requirements. CTG continued to expand its range of MTD resources, including a case study on the steps Cancer Research UK (CRUK) is taking to prepare. CTG’s Future of Gift Aid working group also met for the first time to discuss a range of issues including potential for future automation of Gift Aid, ways to capture digital gifts in the future and whether Gift Aid can continue in its current form and remain fit for purpose, or whether more radical changes are needed. This working group will be developing these initial ideas in a series of meetings in the autumn. CTG also challenged charities to consider whether they could be claiming more Gift Aid and were being too cautious in their approach (particularly in respect of the quality of data received from donors). Discussions between CTG and HMRC yielded helpful feedback on when charities could claim, as well as details of Common Errors on Gift Aid claims and frequent questions to the Charities Helpline.
- June: Responding to queries from members, CTG shared a helpful refresher for charities on the HMRC rules they need to comply with when making grants overseas. CTG also notified members that HMRC had issue tax return requests to 3,000 charities. CTG responded to a call for evidence on the Scottish Non-Domestic Rates Bill highlighting concerns that removal of rates relief for mainstream independent schools in Scotland risks the creation of a two-tier status for charities with tax reliefs applicable only to the most “deserving charities”. The Labour Party published its Civil Society Strategy, which led in turn to engagement with the Shadow Minister for Civil Society’s team, which has requested briefing on tax policy priorities for charities. CTG also co-ordinated a meeting with HMRC to discuss ways that the HMRC guidance on grants and sponsorship could be improved, with charity VAT experts. HMRC officials have confirmed that they would be willing to review changes proposed by CTG. In June and July, CTG participated in three meetings with HMRC officials to discuss Making Tax Digital (MTD). This has included discussions on charities’ readiness for the digital link requirements and measures to support fundraising branches and volunteers to comply with MTD.
- July: CTG welcomed the publication of the Charity Tax Commission report, but did suggest that some of the proposals could have been more far-reaching. CTG will discussing the proposals with other sector bodies in September and with HMRC in due course. Also in July, HMRC published a response to the off-payroll working consultation confirming that the new rules will be implemented in April 2020 as planned. CTG has followed-up representations to HMRC about the definition of turnover and whether it should include donation and grant income or not, as this is not directly addressed in the response. We understand that this income will be excluded, but we are waiting for HMRC to confirm this in writing. CTG also reviewing draft updated guidance on the Gift Aid donor benefit rules, as part of an HMRC working group, with the updated guidance published in August. CTG also reviewed the potential implications of the recent University of Cambridge VAT case on investment management fees, with the CTG Observer Members, with a view to future discussions with HMRC officials, in September, to determine their next steps (with the partial exemption consultation also due to be discussed). During July, CTG also briefed the Department for Exiting the European Union (DEXEU) on CTG’s forthcoming VAT research project, with the survey due to be published in September 2019. Following a Government reshuffle, CTG wrote to the new Exchequer Secretary to the Treasury, Simon Clarke.
If you would like to know more about any of this work, or play a more active role in our lobbying work and engagement with Government, please contact [email protected]. We are also keen to receive feedback from members on their current tax policy priorities so we can target CTG’s work most effectively, particularly in the lead-up to Budget 2019.
Help inform CTG’s consultation responses
If you have any comments on any of these open consultations please send them to us at [email protected].
- (Draft) Employment Allowance (Excluded Persons) Regulations 2019 (HMRC): closing 20 August 2019. The Employment Allowance is a relief which entitles most businesses and charities to a reduction in their secondary Class 1 NICs liabilities of up to £3,000 per year. The (Draft) Employment Allowance (Excluded Persons) Regulations 2019 restricts access to the Employment Allowance for a tax year to employers with secondary Class 1 National Insurance contributions (NICs) liabilities below £100,000 in the previous tax year. From April 2020 the Employment Allowance will be administered as de minimis State Aid in order to ensure compliance with European Union State aid rules. HMRC is undertaking a technical consultation on this legislation, with feedback requested by 20 August 2019. We would be interested in hearing from any charities that have secondary Class 1 NICs liabilities £100,000 to assess the scale of the impact on the sector (although in practice it is a relatively small relief). For those charities with liabilities below £100,000, they will in future need to consider their overall state aid limit, particularly if they are in receipt of other reliefs subject to state aid, such as the Retail Discount. Read more here.
Please consider a donation to the Charity Tax Group (CTG) this year
CTG hopes that you find the newsletters useful and value the work that is undertaken on behalf of charities in lobbying Government to protect existing tax reliefs and simplify the tax system. CTG operates on a limited budget, led by a volunteer Management Committee, and is heavily reliant on contributions from charities each year to fund its work. We are grateful to the charities that do support us and would encourage those charities that do not make a contribution to consider doing so if they can. A donation form can be downloaded here. If you are not sure whether your organisation has made a donation this year, or would like to discuss ways to become more involved with CTG’s work please contact [email protected].
Tax developments and news
Tax planning and incapacity
A recent ruling from the Court of Protection suggests that families can undertake inheritance tax planning (including gifts to charities) for incapacitated relatives. Read more here.
The Chancellor has announced a one-year spending review to be competed in September, to help Government departments prepare for Brexit. This means that the planned three-year comprehensive spending review will be postponed until later next year.
Making Tax Digital
Guidance on signing up for MTD has been updated to include information on what happens when you send in your VAT Return using software. Your software will confirm that HMRC has received your return. You will not receive a confirmation email from HMRC. The guidance also confirms that VAT certificates can be printed out by signing in to your VAT online account
It has been reported that HMRC has said (in response to an FOI request) that it will not impose penalties on businesses missing their VAT return deadline during the first year of MTD, provided they act in good faith. This is consistent with CTG’s discussions with officials to date.
A recent YouGov poll has found that 28% of small companies are worried they’ll actually have to spend more money on their tax affairs as a result of MTD. Full details can be found here. While MTD can appear to be daunting it may also present opportunities to streamline your VAT processes. Read this case study on the steps CRUK are taking to plan for MTD here. If you charity has already completed VAT returns using MTD please share your experiences at [email protected], as this will be helpful in informing members deferred until October 2019.
Call for a delay in the introduction of the VAT domestic reverse charge for building and construction services
From 1 October 2019 a VAT domestic reverse charge will be introduced for non-charitable entities working in the construction industry. The new reverse charge legislation, means that the customer (i.e. the party making payment for construction services) in the transaction will now become responsible for accounting for VAT. Concerns that many small and medium size construction firms have not had adequate opportunity to prepare for this major change in accounting for VAT, has led the Chartered Institute of Taxation to call on HMRC to delay the change by six months. It is important that charities are aware of this change and whether it impacts their organisation in any way by establishing what is considered as “non-charitable” and “charitable” to ensure effective preparation can be put in place prior to 1 October 2019. A detailed commentary by the team at Mazars, including links to HMRC guidance can be found here.
A full archive of CTG commentaries can be found here. If you would like to write a commentary for CTG, please get in touch. Recent newsletters can be accessed here and the updated VAT case law tracker can be read here.
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