*Update: The Chancellor has extended business rates relief to all organisations in the lesiure and hospitality sector and announced further support for business. Read more on CTG’s Coronavirus information hub.*
Responding to the Budget, CTG Chairman John Hemming commented:
“Overall, the lack of references to charities in the Budget is disappointing. Funding for veterans projects and cultural projects are welcome, but do not address the wider funding uncertainty that charities currently face, at a time they are being asked to do more. Measures have been introduced to support business and individuals, but the Government can do more to support charities, as a key supporter of wider society.
“However a number of broader announcements will benefit charities, most notably the decision to introducing a VAT zero rate on digital publications. This is an outcome that CTG has campaigned for over many years and was prominent in our Budget submission to the Chancellor. Charities use publications to tell people about their work or to inform the public in an area the charity is dedicated to. Charities will also try to generate extra funds in this way to fund their charitable activities. A lower tax burden enables more resources to go into these activities. We look forward to the detail on the scope of the relief.
“The decision to remove the Tampon Tax is also welcome and highlights the Government’s willingness to introduce flexibility into the VAT system to support social purposes. We will be calling on the Government to now look at the obstacles charities face in the VAT system. CTG’s VAT research project findings, due to be published later this Spring, will highlight the levels of irrecoverable VAT faced by charities as well as the benefits of VAT reliefs to the sector.
“Additionally, increases and extensions to the Employment Allowance and Retail Discount will help many charity employers and charity shops, but we need to examine the details as both reliefs are current subject to state aid de minimis thresholds which may cap the overall benefits for the sector.
“As expected the Government has announced that a fundamental review of business rates relief in England will take place later this year. It is important that the Government protects the existing charitable rates reliefs (worth up to £2bn a year in England alone) and where possible looks to strengthen these too”.
If you have any questions about the Budget or would like to provide any feedback on the announcements, please contact us at [email protected] or at 02072221265.
The Government has also confirmed that organisations can submit a written representation to HM Treasury to comment on Government policy or suggest new policies to include in Comprehensive Spending Review 2020. HM Treasury will accept representations until midnight on 20 May 2020. The Government has also confirmed that there will be an Autumn Budget too.
- Budget 2020
- Overview of tax legislation and rates (OOTLAR)
- Impact definitions
- Finance Bill 2020 documents
Overview of tax measures relevant to charities and their donors
- Fundamental review of business rates in England: HM Treasury has announced that it will conduct a fundamental review of business rates (in England) with the objective of: reducing the overall burden on businesses; improving the current business rates system; and considering more fundamental changes in the medium-to-long term. The review will include reforms to the current business rates system to put the tax on a more sustainable basis, including assessment of the effectiveness and operation of different reliefs.
- Retail Discount: To support small businesses affected by COVID-19 the Government is increasing the Business Rates Retail Discount further to 100% (up from 50%) for 2020-21. The relief will also be expanded to the leisure and hospitality sectors (which we understand will include museums, art galleries, and theatres). The extension of retail discount should help charity shops. At present, the releif is subject to State Aid de minimis thresholds (cumulative €200,000 de minimis threshold across 3 years), however, so an increase in relief could lead to some charities to deplete their allowance. It will be interesting to see if the state aid rules are relaxed or not. Guidance on the Retail Discount at the existing rates, including a worked example on the impact for charities, can be read here.
- Small business grant funding: Many small businesses pay little or no business rates because of Small Business Rate Relief (SBRR). To support those businesses, the Government will provide £2.2 billion of funding for Local authorities in England. This will provide £3,000 to around 700,000 business currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing business costs. For a property with a rateable value of £12,000, this is one quarter of their rateable value, or comparable to 3 months of rent. Most properties that are eligible for SBRR will have a lower rateable value, and so this will represent an even greater proportion of their annual rent.
- Business rates public lavatories relief: The Government will bring forward legislation as soon as possible in this session to provide mandatory 100% business rates relief for standalone public lavatories in England from April 2020. 2.195 Local authorities will be fully compensated for the loss of income as a result of these business rates measures.
- VAT on e-publications: The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, to make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. This is very welcome news and something that CTG has long campaigned for (see here for a response to a European Commission consultation on the issue way back in 2016). We will however, be looking closely at the detail of this proposal to understand how the Government intends to define e-publication for the purposes of this legislation. The OOTLAR confirms that the Government will be consulting on the details of the legislation ahead of its implementation.
- VAT Partial Exemption: Following the recent call for evidence on the simplification of the VAT rules on Partial Exemption and the Capital Goods Scheme, the Government will continue to engage with stakeholders in relation to their responses and will publish a response in due course. CTG’s response to the consultation can be read here.
- Future of Making Tax Digital: The Government will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related research.
- VAT Postponed Accounting: From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU.
- Abolition of tampon tax: From 1 January 2021 the Government will introduce a zero rate of VAT on women’s sanitary products.
- Long-term cross-border goods policy: The Government will launch an informal consultation over spring 2020 on the VAT and excise treatment of goods crossing UK borders after the EU exit transition period.
- VAT Quick Fixes Directive: The Government will introduce legislation to introduce simplified rules for the VAT treatment of intra-EU movements of call-off stock, allowing businesses to delay accounting for VAT until the goods are called-off. The legislation will apply to goods which are removed from a Member State on or after 1 January 2020.
- Domestic reverse charge for building and construction services: As announced in September 2019,29 the implementation of the VAT domestic reverse charge for building and construction services, which prevents losses through so-called ‘missing trader’ fraud, will be delayed until 1 October 2020. A CTG commentary on this change and the implications for charities can be read here.
- Apprenticeship Levy: The Government will look at how to improve the working of the Apprenticeship Levy, to support large and small employers in meeting the long-term skills needs of the economy.
- Employment Allowance: The Government will increase the Employment Allowance from £3,000 to £4,000 from April 2020. This will be helpful to many charities, but following recent changes it will only apply to employers with secondary Class 1 NIC liabilities of less than £100,000 in the previous tax year, excluding larger charity employers. This relief is also subject to state aid de minimis limits at present, which may limit its value for charities already in receipt of significant state aid in other forms.
- National Insurance holiday for employers of veterans in first year of civilian employment: The Government will introduce a National Insurance holiday for employers of veterans in their first year of civilian employment. A full digital service will be available to employers from April 2022; however, transitional arrangements will be in place in the 2021-22 tax year which will effectively enable employers of veterans to claim this holiday from April 2021. The holiday will exempt employers from any NICs liability on the veteran’s salary up to the Upper Earnings Limit. The Government will consult on the design of this relief.
- Tax treatment of welfare counselling provided by employers: The Government will extend the scope of non-taxable counselling services to include related medical treatment, such as cognitive behavioural therapy, when provided to an employee as part of an employer’s welfare counselling services. The changes will take effect from April 2020.
- Review of changes to the off-payroll working rules (commonly known as IR35): At Budget 2018 the Government announced that it would reform the off-payroll working rules in the private and third sectors from April 2020. The Government has recently concluded a review of the reform, and is making a number of changes to support its smooth and successful implementation. The Government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.
- Increasing National Insurance thresholds: The Budget confirms the Government’s commitment to increase the thresholds at which employees and the self-employed start paying National Insurance contributions (NICs) to £9,500 from April 2020.
- Income tax and National Insurance exemptions for bursary payments to care leavers: The Government will legislate in Finance Bill 2020 to introduce an income tax exemption for the bursary paid by the Education and Skills Funding Agency to care leavers aged 16 to 24 who start an apprenticeship. Corresponding legislation will be introduced to mirror the income tax exemption for NICs. This legislation will confirm HMRC’s current position that care leavers’ bursaries are tax exempt, including those paid prior to the 2020-21 tax year.
- Additional funding for veterans mental health: The Government will provide a £10 million uplift in 2020-21 to the Armed Forces Covenant Fund Trust, to deliver charitable projects and initiatives that support veterans with mental health needs. This funding demonstrates this Government’s ongoing commitment to ensuring that our veterans can access the services and support that they deserve
Business support with taxation
- Coronavirus support: The Chancellor made the following commitments:
- that the NHS will be given whatever extra resources it needs to fight coronavirus
- that Statutory Sick Pay (SSP) will be paid from day 1 rather than from day 4 and will be available to all who have been advised to self-isolate but who have not exhibited symptoms
- that for companies with fewer than 250 employees, the first 14 days of SSP will be refunded
- that those on Contributory Employment and Support Allowance will be able to claim on day 1 rather than day 8
- that the minimum income floor on Universal Credit is temporarily suspended
- that the Government will establish a Hardship Fund distributed to local authorities which will be able to use it directly to support vulnerable people in their local areas
- Time to Pay: The Government will ensure that businesses and self-employed individuals in financial distress and with outstanding tax liabilities receive support with their tax affairs. HMRC has set up a dedicated COVID-19 helpline to help those in need, and they may be able to agree a bespoke Time to Pay arrangement. Time to Pay has been used in response to flooding and the financial crisis, giving businesses a time-limited deferral period on HMRC liabilities owed and a pre-agreed time period to pay these back. These tailored arrangements will give a business the time it needs to pay HMRC to support their recovery while operating through any temporary financial challenges that occur. To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available to support firms when needed. HMRC will also waive late payment penalties and interest where a business experiences administrative difficulties contacting HMRC or paying taxes due to COVID-19.
- Coronavirus Business Interruption Loan Scheme: The Government will launch a new, temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, to support businesses to access bank lending and overdrafts. The Government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The Government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £1.2 million in value. This new guarantee will initially support up to £1 billion of lending on top of current support offered through the British Business Bank.
- Fuel duty: The Government will freeze fuel duty for a tenth year in a row. Future fuel duty rates will be considered alongside measures that are needed to help meet the UK’s net zero commitment.
Compliance and tackling tax avoidance
- Additional compliance resources for HMRC: The Government is investing in additional compliance officers and new technology for HMRC. This investment is forecast to bring in £4.4 billion of additional tax revenue up to 2024-25 by enabling HMRC to further reduce the tax gap through additional compliance activity and expanding debt collection capabilities.
- Tackling promoters of tax avoidance: The Government will legislate in Finance Bill 2020-21 to take further action against those who promote and market tax avoidance schemes. The legislation, which will take effect following Royal Assent, will:
- allow HMRC to obtain information about the enabling of abusive schemes as soon as they are identified by strengthening information powers for HMRC’s existing regime to tackle enablers of tax avoidance schemes
- ensure enabler penalties are felt without delay for multi-user schemes, meaning anyone enabling tax avoidance arrangements that are later defeated will face a penalty of 100% of the fees they earn
- enable HMRC to act promptly where promoters fail to provide information on their avoidance schemes. In particular, these changes will help HMRC obtain the information needed to bring a scheme into the Disclosure of Tax Avoidance Schemes regime and empower HMRC to act faster where avoidance schemes are being promoted
- equip HMRC to more effectively stop promoters from marketing and selling avoidance schemes as early as possible
- ensure promoters fulfil their obligations under the Promoters of Tax Avoidance Scheme (POTAS) regime, including where they have tried to abuse corporate structures to get around the rules
- make further technical amendments to the POTAS regime, including preventing spurious legal challenges from disrupting the process of scrutinising promoters, so the regime can continue to operate effectively
- make additional changes to the General Anti-Abuse Rule (GAAR) so it can be used as intended to tackle avoidance using partnership structures.
- HMRC’s promoter strategy: On top of the legislative changes the Government will introduce in Finance Bill 2020-21, HMRC will publish a new ambitious strategy for tackling the promoters of tax avoidance schemes. This will outline the range of policy, operational and communications interventions both underway and in development to drive those who promote tax avoidance schemes out of the market, disrupt the supply chain to stop the spread of marketed tax avoidance, and deter taxpayers from taking up the schemes.
- Raising standards in the market for tax advice: The Government will publish a call for evidence in the spring on raising standards for tax advice. This will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the Government’s efforts to support those standards, in order to give taxpayers more assurance that the advice they are receiving is reliable.
- Large business notification: From April 2021 large businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge. This policy will draw on international accounting standards which many large businesses already follow. The Government will consult shortly on the detail of the notification process.
- HMRC automation: As announced on 31 October 2019, the Government will legislate to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices. This measure will apply prospectively and retrospectively to put beyond doubt that the rules work as designed and intended. This does not create any new or additional obligations or liabilities for taxpayers.
- Insurance Premium Tax (IPT) call for evidence: The Government will shortly publish a summary of responses to the recent call for evidence on the operation of IPT, along with information on a forthcoming consultation setting out the next stage in reforming how IPT operates.
Other updates of interest
- Research & Development Expenditure Credit (RDEC) rate:The rate of RDEC will increase from 12% to 13% from 1 April 2020, supporting businesses investing in R&D. Following the introduction of RDEC in 2013 legislation has been amended so that universities and charities are unable to claim it. The Government has stated that the rationale for withdrawing the relief is that charities and universities were never the intended recipients of RDEC and
that, in the case of universities, equivalent funding is already provided through HEFCE. Investor owned research companies obtain tax credits, but charities receive no such funding. Introducing a new tax credit for charities would provide a major stimulus to R&D in medical research in the UK thereby helping to meet the Government’s stated objectives as part of the Industrial Strategy. CTG believes that there are other imaginative tax measures that the Government could introduce to stimulate charity funding of bio-medical research.
- Cryptoassets consultation: To protect consumers and support innovation in cryptoassets, the Government intends to consult on a measure to bring certain cryptoassets into scope of financial promotions regulation. The Government also intends to consult later in 2020 on the broader regulatory approach to cryptoassets, including new challenges from so-called ‘stablecoins’. Guidance for charities on the tax implications of cryptoassets, including bitcoin can be found here.
- Call for evidence for the Payments Landscape Review: In light of rapid technology developments, HM Treasury, working alongside the regulators and the Financial Policy Committee, is leading a Payments Landscape Review to make sure the UK’s payments infrastructure and regulation are keeping pace. As part of this, HM Treasury will shortly be publishing a call for evidence to ask what more could be done by the Government, industry and regulators to support a more innovative and resilient payments system and ensure the UK payments sector remains world leading.
- Retail Prices Index consultation: The Government and UK Statistics Authority (UKSA) are launching a consultation, on UKSA’s proposal to address the shortcomings of the Retail Prices Index (RPI) measure of inflation. The consultation will cover, among other things, the issue of timing, including whether the UKSA’s proposal might be implemented at a date other than 2030, and if so, when between 2025 and 2030, and issues on technical matters concerning the implementation of its proposal. The consultation will be open for a period of six weeks, closing on 22 April 2020.
- Changing where the Government makes decisions: The Government will relocate a minimum of 22,000 civil service roles out of central London, the vast majority to the other regions and nations of the UK. HM Treasury, alongside DIT, BEIS and MHCLG, will establish a new economic decision-making policy campus of over 750 roles in the north of England. HM Treasury will also establish representation in Northern Ireland and Wales, adding to its existing presence in Scotland.
- Economic crime levy: The Government intends to introduce a levy to be paid by firms subject to the Money Laundering Regulations to help fund new Government action to tackle money laundering and ensure delivery of the reforms committed to in the Economic Crime Plan. These reforms will help safeguard the UK’s global reputation as a safe and transparent place to conduct business. The levy will be additional to ongoing public sector funding. The Government will publish a consultation on the levy later this spring and it remains to be seen if large charities will be subject to the levy.
- Plastic Packaging Tax: As announced at Budget 2018 and following consultation in spring 2019,21 the Government will introduce a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic. The Budget also announces the launch of a further consultation on the detailed design and implementation of the tax, which includes consideration of an exemption for certain types of medical packaging.
- Increasing the gas rates under the Climate Change Levy (CCL) for years 2022-23 and 2023-24: The Government is raising the rate on gas to £0.00568/kWh in 2022-23 and to £0.00672/kWh in 2023-24 whilst freezing the rates on electricity. To ensure the tax system treats fuels that are used off the gas grid more equitably, the Government will freeze LPG at 2019-20 levels until April 2024.
- Corporate capital loss restriction: As announced at Budget 2018, from 1 April 2020, the Government will restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. This measure includes an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year, meaning that 99% of companies will be unaffected.
- Corporation tax rate: The Government will legislate to retain the current 19% rate in April 2020.
- Digital services tax (DST): The Government will introduce a new 2% tax on the revenues certain digital businesses earn from 1 April 2020. The Government remains committed to developing a multilateral solution to the challenges digitalisation has created for the corporate tax system and will repeal the DST once an appropriate global solution is in place. CTG has previously concluded that this will not directly affect charities as it is targeted at search engines and social media platforms – read more here.
- Capital Gains Tax: Reduction in the Entrepreneurs’ Relief lifetime limit: From 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief (which offers a reduced 10% rate of Capital Gains Tax on qualifying disposals) will be reduced from £10 million to £1 million.
- UK Shared Prosperity Fund (UKSPF): The UKSPF will replace the EU structural funds. Funding will be realigned to match domestic priorities, with a focus on investing in people. It will, at a minimum, match current levels of funding to each nation from EU structural funds. The Government will set out further plans for the Fund including at the Comprehensive Spending Review.
The Charity Tax Group (CTG) has over 700 members of all sizes representing all types of charitable activity. It was set up in 1982 to make representations to Government on charity taxation and it has since become the leading voice for the sector on this issue. CTG has persuaded successive Governments to introduce a range of tax reliefs and has also campaigned successfully to protect existing concessions, saving charities a considerable amount of money in the process.