CTG Newsletter – 21 November 2017

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Tax Strategy – turnover does not include donation income

As reported to CTG members earlier this year, companies, partnership, groups or sub-groups need to publish a tax strategy if in their previous tax year they have either a: turnover above £200 million or a balance sheet over £2 billion. For groups and sub-groups, it’s the combined totals of all the relevant bodies that must be used.

The Tax Strategy needs to include sections on: how you manage tax risks; your attitude to tax planning; your tax risks; and working relationship with HMRC. The first strategy should be published before the end of your first financial year commencing after Royal Assent of Finance (No. 2) Bill 2016.

Following queries from members, CTG contacted the HMRC Charity Policy team to clarify whether charities would be required to produce a Tax Strategy. Officials confirmed that charities are required to comply if they meet the eligibility criteria outlined above.

However, CTG queried the definition of turnover and whether it would match the definition outlined in the Senior Accounting Officer (SAO) legislation which states:

For the purposes of the Senior Accounting Officer (SAO) legislation the definition of turnover is taken from Section 474 of the Companies Act 2006. This states that turnover means the amount derived from the provisions of goods or services within the company’s ordinary activities after deduction of trade discounts, VAT and other relevant taxes

 Corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover.

HMRC officials have confirmed that the same definition will be used, so donation income does not need to be included. We expect written confirmation of this shortly. This will mean a number of charities will fall below the £200m turnover threshold. We are also awaiting clarification on the correct treatment of grant income and income from the sale of donated goods.

Charities still have the option to provide a Tax Strategy if they wish, but this provides greater flexibility and ensures consistency in definitions across legislation and guidance.

Budget coverage tomorrow

Following tomorrow’s Budget announcement CTG will circulate an update to members, following an update from HM Treasury Charities team officials. For instant updates you can follow CTG on Twitter @CharityTaxGroup or using #volsecbudget.

CTG has published its pre-Budget submission which identifies four key areas in which Government can support the charity sector:

• Working with charities to ensure the VAT system is fit for the future
• Clarifying the implications of Making Tax Digital for charities
• Progressing discussions relating to the reform of the Gift Aid donor benefit rules
• Addressing the cumulative financial and administration burden of charity taxation.

Following the Chancellor’s announcement in the 2016 Autumn Statement, there will now only be one fiscal statement each year, held in the Autumn. From 2018 there will be a Spring Statement, responding to the forecast from the Office for Budget Responsibility, for which no representations process will be opened.

CTG’s website includes an archive of previous year’s Budget announcements which can be accessed here.

Charity Tax Update in Manchester

CTG is hosting a Charity Tax Update session in Manchester, on Monday 27 November 2017, in association with EY.  The update will take place between 14.00 and 16.00, preceded by a sandwich lunch and networking from 13.00. You can register for this free event here.

The session will include a presentation by Steve Carroll, from HMRC’s Charities Outreach team, who will look at recent Gift Aid updates including the work being done to improve donor education around Gift Aid and online fundraising. Other topics covered will include a review of recent VAT case law, VAT reform, Making Tax Digital and business rates as well as a round-up of any relevant  announcements in the Budget.

The presentation slides from the recent Charity Tax Update in Cardiff, in association with Deloitte, can be downloaded here.

Annual return for 2018 – information collected from charities

Members are reminded that the Charity Commission is currently running a consultation on proposed changes to the charities Annual Return for 2018 (AR18). The proposed changes aim to make the Return better targeted and easier to use for charities – those charities that are smaller and have simpler operating structures will answer fewer questions, whereas those that are larger and more complex will be required to answer more. Responses to the consultation should be made by 24 November 2017.

The proposed questions include a specific section on Gift Aid. As well as asking whether or not a charity is registered for Gift Aid, the Commission suggests that under AR18 it should ask these charities for additional information about the amount of Gift Aid claimed in the reporting year. The reasons given for this additional line of questioning are that: it will enable the Commission to carry out proactive, informed risk assessments of individual charities; it will enable the Commission to deal more efficiently with cases where there is evidence of poor administrative practice indicating a failure by the trustees to comply with their trustee duties or where there could be abuse or mismanagement; and it will help identify where there are trends in Gift Aid claims, either across all registered charities which file returns or in certain groups of registered charities, ensuring that charitable funds are applied properly.

We would be particularly interested in members’ views on this section and would encourage members to consider submitting a response to the consultation, copying it to CTG in order to help frame our response.

Round-up of other topical developments

• VAT and pension fund management services: HMRC has published an updated Revenue and Customs Brief 3 (2017)covering the VAT treatment of pension fund management services. It confirms that the policy of allowing insurers to treat their supplies of non-SIF pension fund management services as VAT exempt insurance is to be discontinued. This policy change will apply from 1 April 2019, extended from 1 January 2018.
• Tax treatment of sporting testimonials: From 6 April 2017, new rules apply to the treatment of sporting testimonial income. Income Tax is due on income from all sporting testimonial and benefit match events. Corporation Tax and VAT may also be due depending on the nature of the income or how payments are made. The Government has agreed to a ‘one-off’ tax exempt amount of £100,000 for income from a non-contractual or non-customary sporting testimonial event (or year), if certain conditions are met. The new rules cover income from events that take place on or after 6 April 2017, but only where the testimonial has been announced on or after 25 November 2015. The new rules don’t apply to National Insurance contributions (NICs). Matching changes for NICs will apply from 6 April 2019. This may be of interest to charities that benefit from donations from sport stars following testimonials.
• The Taxation (Cross-border Trade) Bill: The Bill, previously known as the Customs Bill, has been published to ensure that as the UK exits the EU goods can move smoothly and safely in and out of the UK, and that everyone pays the right tax. The Bill will allow the UK to set and collect its own duty on goods coming into the country and will allow the government to implement different outcomes of the EU negotiations, including an implementation period.

CTG Newsletter Archive

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

• CTG Newsletter – 17 November 2017
• CTG Newsletter – 14 November 2017
• CTG Newsletter – 8 November 2017
• CTG Newsletter – 6 November 2017
• CTG Newsletter – 2 November 2017
• CTG Newsletter – 1 November 2017
• CTG Newsletter – 26 October 2017
• CTG Newsletter – 25 October 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:

• 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.

Website, newsletters and supporting CTG

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CTG relies on donations from its charity members to fund the work it does on behalf of the sector. If your organisation has not yet made a contribution to our work in 2017, please consider doing so – further information and a donation form can be found here.