CTG Newsletter – 21 March 2017

CTG responds to European Commission consultation on VAT rate reform

In December 2016 the European Commission published a public consultation considering two broad options for the reform of the VAT rate system:

• Option 1 would 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.
• Option 2 would remove the minimum rate of 15% and abolish the list of reduced and zero rates, thus granting greater discretion for Member States in fixing their own VAT rates.

Brexit notwithstanding, it was crucial that the voice of the charity sector was heard in this important consultation. CTG led the formulation of the response submitted by the European Charities’ Committee on VAT (ECCVAT) which used this consultation as an opportunity to highlight the ongoing difficulties charities face in the VAT system.

In response to the primary question on the reform options, we stated:

“ECCVAT has been working for many years to address the problems for charities that are inherent in the current VAT system.  Clearly, any system that substantially increases flexibility for Member States could benefit the sector across Europe and Option 2 certainly is the more attractive option from that point of view.  We recognise that greater flexibility would allow Member States more discretion in supporting goods and activities that would benefit from reduced- and super-reduced rates. This decision is often best made at a local level and Governments would be able to act more quickly to address VAT distortions and difficulties if they were not restricted by existing rules on VAT changes, which require the unanimous support of the Member States. We would welcome this flexibility.

“ECCVAT does, however, have concerns about allowing flexibility to Member States without ensuring that Member States support the recognition that the current VAT system gives to items of social benefit, which it currently does through the application of certain exemptions.  Were protections not built in to any new flexible system ECCVAT believes that Option 1 should be introduced. This option would also provide an improvement on the current system, albeit a less significant one, and would go a long way towards addressing some of the structural deficiencies in the VAT system”.

ECOFIN debates proposal to extend reduced VAT rate to e-publications

The Economic and Financial Affairs Council today debated a proposal for a Council Directive amending Directive 2006/112/EC, as regards rates of value added tax applied to books, newspapers and periodicals. The Commission proposes to grant all Member States, the possibility to apply the same VAT rates to electronically supplied publications as Member States currently apply to printed publications, which include reduced, super-reduced and zero rates. Overall there was support for the proposal although a number of Member States only offered that on the basis that implementation was optional. A good number of Member States expressed concerns about allowing super reduced or zero rates while others felt that was appropriate, particularly for those countries with an equivalent super reduced rate for physical publications. A revised proposal will be tabled at an ECOFIN meeting later this year. Further information can be found here.

Finance (No. 2) Bill 2017 published

The Finance (No. 2) Bill 2016-17 and the associated explanatory notes have now been published. Provisions relevant to charities are outlined include:

• Off-payroll workers in the public sector
• Salary Sacrifice and Benefits in Kind
• Extension of Social Investment Tax Relief (SITR)
• Museum and gallery exhibitions
• VAT zero-rating of adapted motor vehicles
• Insurance Premium Tax (IPT)
• Penalties for enablers of defeated tax avoidance
• Penalty for transactions connected with VAT fraud

Adecco case on VAT and temporary workers

Charities will be disappointed to learn that Adecco’s appeal to the Upper Tribunal in respect of the VAT treatment of temporary workers has been unsuccessful. A more detailed analysis will be circulated later this week. In the meantime the judgment can be read here.

Making Tax Digital: sanctions for late submission and late payment

The Government has made proposals for sanctions for late submission and late payment under the Making Tax Digital rules. HMRC has now published a consultation which sets out three possible models for late submission penalties (A: Points-based, B: Regular review of compliance, or C: Suspension of penalties). The proposals have been developed with the new Making Tax Digital for Business obligations in mind but the consultation also explores the suitability of the sanctions for other regular submission obligations. The consultation also provides an update on late payment penalty interest as a sanction for late payment of Income Tax, Corporation Tax and VAT. The deadline for responses is 11 June 2017. Full details of the consultation can be found here and further information on the implications of MTD for charities and their subsidiaries here.

This consultation has now closed and HMRC has published a summary of responses. In response to concerns about the 14-day filing time limit, the Government has delayed the commencement in order to make it easier to comply with obligations in respect of complex commercial transactions. Implementation will now not be before April 2018.

Dates for your diary

28 March 2017

• The new £1 coin will enter circulation.

1 April 2017

• New rules for VAT relief on substantially and permanently adapted motor vehicles for disabled wheelchair users will become effective.
• The VAT registration and deregistration thresholds will increase.
• The rates of the National Minimum Wage will increase.
• The Museums and Galleries Tax Relief  will become effective.

6 April 2017

• New Off-payroll working rules for public sector employers come into force.
• Apprenticeship Levy payments will be collected by HMRC via PAYE from April.
• Provisions in the Small Charitable Donations Act 2017 will be effective.
• Provisions in the Donations to Charity (Gift Aid Declarations) Regulations 2016  affecting Gift Aid and intermediaries will be effective.
• The Social Investment Tax Relief will be enlarged.
• Benefits-in-kind provided under a salary-sacrifice scheme to be limited in many cases.

28 March 2017

•  Annual Tax Conference (Waiting list only)

4 May 2017 

• Charity Tax Updates in Leeds.

Consultations tracker

CTG will be preparing responses to a number of important consultations over the next few months. Our consultation responses rely on input from members and we would encourage you to send us your thoughts, and where relevant submit your own consultation response. The deadlines for forthcoming consultations are outlined below. Please send your feedback via the relevant consultation page on the CTG website or to info@charitytaxgroup.org.uk.

• Ongoing – Insurance Premium Tax survey (CTG)
• Ongoing – Discretionary Charity Business Rates Relief (CTG)
• 20 March 2017 – Review of VAT Rates (European Commission)
• 7 April 2017 – £300m discretionary rates relief fund (DCLG)

CTG Newsletter Archive

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

• CTG Newsletter – 17 March 2017
• CTG Newsletter – 15 March 2017
• CTG Newsletter – 13 March 2017
• CTG Spring Budget Update – 8 March 2017
• CTG Newsletter – 3 March 2017
• CTG Newsletter – 17 February 2017
• CTG Newsletter – 15 February 2017

CTG Commentaries

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

• AG Opinions on the VAT cost-sharing exemption – implications for charities (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) NEW COMMENTS
• Holding companies are required to raise management fees in order to ensure VAT recovery (Dermot Rafferty)
• Update on “Economic Activity” and the fate of the Lord Fisher test (Graham Elliott)
• Filing charity trading subsidiary tax returns and charity accounts (Justin Bevan) NEW COMMENTS
• Update on the Adecco temporary workers VAT case (Deloitte)
• 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.

Help to promote CTG in 2017

Do you have colleagues/friends in other charities that would benefit from receiving CTG’s newsletters? If so, please share this link to a page with full details about membership. Thank you again for supporting CTG in 2017.

Website accounts

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.