CTG Newsletter – 18 January 2018

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HMRC guidance on the VAT treatment of grants and contracts updated

After a long period of development, HMRC has published updated replacement guidance on the VAT treatment of grants and contracts.

Just over two years ago, CTG’s VAT Expert Group was invited to comment on an early draft of the guidance and overall we feel it is an improvement, particularly the sections on indicators of the supply position and related factors to help determine whether the payment is consideration for a supply or not.

CTG is now in the process of reviewing the final version of the guidance and will continue to engage with HMRC where some of our suggestions have not been progressed or we feel further clarification would be useful.

We would welcome feedback from members on the updated guidance (to info@charitytaxgroup.org.uk) and will provide further commentary on important additions and clarifications in due course, but wanted to ensure members had access to the guidance as soon as it was available. Sections of the Charity Tax Map online will also be updated in due course.

European Commission proposals on VAT rates published

As part of its plans for a new definitive single EU VAT area, the European Commission has proposed new rules amending Directive 2006/112/EC to give Member States more flexibility when setting VAT rates. Last year, the European Commission opened a public consultation considering two broad options for the reform of the VAT rate system:

1. to keep the standard VAT rate of 15% and regularly update the list of goods and services eligible for reduced rates, on the basis of Member States suggestions.
2. to remove the minimum rate of 15% and abolish the list of reduced and zero rates.

The European Commission has decided to progress a version of the second option, something CTG was in favour of. Further details can be found here. While it remains unclear exactly how the VAT system will operate once the UK has exited the EU, it is important that we continue to monitor developments.

In addition to keeping a standard VAT rate of minimum 15%  the European Commission has proposed that Member States be now able to put in place:

• two separate reduced rates of between 5% and the standard rate chosen by the Member State
• one exemption from VAT (or ‘zero rate’)
• one reduced rate set at between 0% and the reduced rates

The current list of goods and services (Annex III), to which reduced rates can be applied, would be abolished and replaced by a negative list (a new Annex IIIa), to which reduced rates cannot be applied (the standard rate of 15% or above would therefore always be applied to the goods and services mentioned on the list).

Member States will have to ensure that the weighted average VAT rate applied to those transactions for which VAT cannot be deducted is at least 12%. This is designed to safeguard revenues. It remains to be seen exactly how this will operate in practice and whether it will include existing reduced and zero rated supplies.

The new regime would also mean that all goods currently enjoying rates different from the standard rate can continue to do so. Existing reduced rates, including derogations, that are legally applied in Member States will expire with the introduction of the definitive VAT regime which is currently being negotiated in the Council. These proposals mean that, even once these derogations expire, countries will be able to maintain the reduced rates with very few exceptions. It will also allow all other Member States to apply similar derogations if they so wish.

The European Commission has also proposed to reduce VAT costs for SMEs. While current exemption thresholds will remain in place, the proposals would introduce:

• A €2m revenue threshold across the EU, under which small businesses would benefit from simplification measures whether or not they have already been made exempt from VAT
• The possibility for Member States to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting or returns
• A turnover threshold of €100,000 which would allow companies operating in more than one Member State to benefit from the VAT exemption.

These legislative proposals will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption.

It is possible to send comments on the European Commission’s proposals. The feedback period will be open until 15 March 2018.

Round-up of other topical developments

• Charities Online: HMRC has updated its list of approved commercial software suppliers for Charities Online.
• Partial Exemption: HMRC has published research aimed to explore businesses’ knowledge and use of VAT partial exemption, and gather information on VAT recovery rates in 17 industry sectors. In particular, it looked at: awareness of VAT partial exemption; knowledge of the different methods of calculating it; and how much VAT is being recovered by businesses in different industry sectors. The research found that there was general awareness of VAT partial exemption, but that recovery of VAT differed widely among businesses, both within and between sectors.
• Automatic disqualification of trustees: From 1 August 2018 changes to the automatic disqualification rules mean that there will be more restrictions on who can run a charity. Further guidance from the Charity Commission can be found here.

Get involved

CTG members are encouraged to:

• Provide feedback on the draft legislation and VAT Notice that will introduce Making Tax Digital for VAT (the deadline for comments is 9 February 2018).
• Provide feedback on two key Gift Aid issues on which CTG has been asked to provide proposals to HMRC:
  • the impact of the General Data Protection Regulation (GDPR) on Gift Aid, particularly in relation to the future of enduring declarations
  • what the future of Gift Aid looks like, considering issues such as how to maximise Gift Aid in the face of digital transformation.
• Save the date of the Tax Conference – 15 May 2018.  We would welcome feedback from members on previous events and any suggestions for speakers or topics at next year’s Conference via the comment box here.
• Join the new Business Rates working group or tell us if you receive any correspondence from local councils reviewing any of your existing reliefs. The group will be considering a response to the consultation on business rates in multi-occupied properties (the deadline for comments is 23 February 2018)
• Join the Gift Aid practical issues working group in 2018 – read why here! There is now a total of 55 charity members.
• Help us to improve the Gift Aid donor benefits guidance – submit feedback here
• Share their feedback on how their charity has been affected by the Apprenticeship Levy so far (e.g. cost so far, amount of levy used or expected to be used).
• Share their experience of a practical or technical charity tax issue by writing a commentary
• Share details of any challenges to VAT zero rating on advertising by agencies
• Share your experiences of registering with the Trusts Registration Service
• Register for the next Observer Member meeting on 1 March 2018 (Observer Members only)
• Follow us on Twitter @CharityTaxGroup

Send any comments to info@charitytaxgroup.org.uk or call the Secretariat on 020 7222 1265.

CTG website and newsletters

Charity and Observer Members are reminded that their membership is on an organisational basis and that there is no limit of the number of subscribers to the website per organisation. If you think a colleague would benefit from getting access to the website and newsletters directly, please encourage them to register online at www.charitytaxgroup.org.uk/join-us/ selecting your organisation from the drop-down box.

CTG continues its efforts to expand the number of charity members and would be very grateful if you could share details of membership with any charity sector contacts. Further information and a link to a downloadable promotional leaflet can be found here.

CTG Newsletter Archive

Members can catch up on CTG’s recent newsletters using the links below:

• CTG Newsletter – 17 January 2018
• CTG Newsletter – 11 January 2018
• CTG Newsletter – 9 January 2018
• CTG Newsletter – 3 January 2018
• CTG Newsletter – 20 December 2017

CTG’s VAT case law tracker has also been recently updated.

Expert Commentaries

Read our expert commentary pieces and leave your comments and queries:

• Healthwatch Hampshire – follow-up news (Graham Elliott)
• Yorkshire Agricultural Society VAT case – certain free events are not economic activities (Dermot Rafferty)
• LIFE Services VAT case on the welfare exemption (Graham Elliott)
• 2017 Gift Aid round-up (Richard Bray)
• VAT case relating to ‘single supply’ and zero rated printed material (Graham Elliott)
• Corporate Criminal Offence – implications for charities (Ian Short and Tania Dimitrovich-Archer)
• Definition of a ‘sport’ for VAT purposes – English Bridge Union case (Graham Elliott)
• Relevant Residential and Relevant Charitable buildings: Clawback provisions – Balhousie Holdings case (Graham Elliott)
• Proposed new penalties for participation in VAT fraud (Edd Thompson and Juliet Bailey)
• Summary of recent VAT cases on partial exemption, sports supplies & charitable annexes (Graham Elliott)
• Benefits of joining the CTG Gift Aid practical issues working group (Keren Caird and Donna Perry)
• Iberdrola VAT case – Implications for Sveda? (Dermot Rafferty)
• Is a CASC a Charity (for Tax Purposes)? (Graham Elliott)
• Charity VAT Recovery – The Road Not Taken (Graham Elliott)
• VAT recovery for holding companies – MVM case and HMRC guidance (Dermot Rafferty)
• Professional negligence and failed tax avoidance schemes (Sonia Ferreira)
• Definition of a ‘sport’ for VAT purposes – new AG opinion (Graham Elliott)
• Business rates valuations for museums (Colin Hunter)
• First experience of submitting a Common Reporting Standard (CRS) return (CTG)
• Construction of Relevant Charitable Purpose (RCP) buildings – position of sub-contractors (Les Howard)
• Supplies to local authorities – Healthwatch Hampshire VAT case (Graham Elliott)
• Brockenhurst College VAT case – implications for charities (Graham Elliott)
• Filing charity trading subsidiary tax returns and charity accounts (Justin Bevan)
• Adecco appeal on the VAT treatment of temporary workers dismissed (Graham Elliott)
• Have you paid enough tax to cover your Gift Aid donations? (Kevin Russell)
• Off-payroll working: Major changes from April 2017 (Susan Ball)
• Update on “Economic Activity” and the fate of the Lord Fisher test (Graham Elliott)
• Durham Cathedral VAT case and Sveda – implications for charities (Graham Elliott)
• Hire fees for stalls at fairs – implications of the Kati Zombory-Moldovan case (Graham Elliott)
• Common Reporting Standard – Top 10 tips for charities (Alana Petraske)
• Charity Authorised Investment Fund (CAIF) launched (Grania Baird)
• Longridge on the Thames VAT case – implications for charities (Graham Elliott)
• Implications of Brexit for charity tax (John Hemming)
• Implications of the Hallé case for the philanthropic exemption (Graham Elliott)
• Helping you find your way – the new Charity Tax Group website (John Hemming)

Please contact us at info@charitytaxgroup.org.uk if you would be interested in contributing a commentary piece.