The Charity Tax Group (CTG) today responded to announcements related to charities included in the Budget.
Commenting on the Budget announcements, John Hemming, Chairman of CTG, said:
“There were very few announcements that have a direct impact on charities and we hope that the Government will consider greater support for the sector in the Autumn Budget. There are some positives:
- we hope that the support for investment in science, research and innovation in the Budget will result in the Government supporting our proposals to reintroduce the Research and Development Tax Credit (RDEC) for non-university charities.
- we have welcomed the exemption for charities from the Making Tax Digital reporting requirements, but feel strongly that this should be extended to charity trading subsidiaries to avoid practical and administrative difficulties in the longer term, particularly in relation to VAT groups.
- it is welcome that Insurance Premium Tax has not increased further, but CTG continues to call on the Government to introduce a targeted exemption for charities or, at least, a reduced rate where the insurance is required to cover activities or premises that directly relate to a charity’s objects.
- on business rates, we welcomed the confirmation from the Treasury that the £300m discretionary rates relief fund can cover charities but we fear that this will only contribute further to the “postcode lottery” that currently operates.
- we will continue to make a strong case for the retention of the current exemption for employer provided living accommodation, as part of the planned consultation as this is of significant value to many charities, in particular for churches, hospitals, higher education establishments and heritage buildings.”
Summary of developments relevant to charities
Making Tax Digital – Estimated costs depend on final software solutions, the availability of free software and individual providers’ pricing structures. The government recognises that this produces a broad estimate, and so we will review and test this analysis and our assumptions through ongoing extensive engagement and consultation with businesses, and through further research and analysis. This means that the final estimate of the savings and costs to business could be different from the estimate presented here.
It is also expected that businesses will incur transitional costs in moving to the new arrangements. Our current estimate is that the transitional costs average about £280 per business (in their year of transition) over the period 2017 to 2018 to 2020 to 2021.
The costs are likely to cover:
- time spent in familiarising themselves with the new digital tools and quarterly submission of information
- purchase of new apps and upgrading existing software. This will depend on what free software is available from the market, and take-up
- a small minority of businesses may need to purchase new hardware or upgrade existing hardware
- additional accountancy / agents costs
The Government will provide an extra year, until April 2019, before Making Tax Digital is mandated for unincorporated businesses and landlords with turnover below the VAT threshold. This will provide them with more time to prepare for digital record keeping and quarterly updates. The government will also consult on the design aspects of the tax administration system, including interest and penalties, with the aim of adopting a consistent approach across taxes. CTG will be looking to assess how many charity trading subsidiaries will be affected by this temporary delay. Further comment from CTG on Making Tax Digital can be found here.
Different forms of remuneration – Employers can choose to remunerate their employees in a range of different ways, but the tax system treats these different forms of remuneration inconsistently. The government is considering how the tax system could be made fairer and more coherent, including by looking at the taxation of benefits in kind and employee expenses. The government is consulting on the following:
- Taxation of benefits in kind – The Government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
- Accommodation benefits – The Government will publish a consultation with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition. Further CTG comments on this can be found here.
- Employee expenses – The Government has published a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.
Research and development (R&D) tax review – The Industrial Strategy green paper sets out the government’s ambition to drive up the level of private investment in science, research and innovation across the economy. The review of the R&D tax regime has found that the UK’s R&D tax credits regime is an effective and internationally competitive element of the government’s support for innovation. To further support investment, the government will make administrative changes to the Research and Development Expenditure Credit to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among SMEs. The Government will continue to keep the competitiveness of the UK environment for R&D under review to ensure that the UK is profoundly pro-innovation.
Business rates – At Budget 2016 the government announced reductions in business rates worth almost £9 billion over the next 5 years. This included permanently doubling Small Business Rate Relief and extending the thresholds of the relief to ensure that 600,000 businesses will not pay business rates again. The business rates revaluation takes effect in England from April 2017. In addition to the £3.6 billion transitional relief which was announced in November 2016, the government will provide £435 million of further support for businesses facing significant increases in bills from the English business rates system. This includes:
- support for small businesses losing Small Business Rate Relief to limit increases in their bills to the greater of £600 or the real terms transitional relief cap for small businesses each year
- providing English local authorities with funding to support £300 million of discretionary relief, to allow them to provide support to individual hard cases in their local area. HM Treasury officials have confirmed that charities will be eligible to receive this relief.
Local Government will be fully compensated for the loss of income as a result of these measures. At Budget 2016 the government announced an aim to deliver more frequent revaluations of properties – at least every 3 years. The Government will set out its preferred approach for delivering this aim at Autumn Budget 2017 and will consult ahead of the next revaluation in 2022.
The Government has agreed a Memorandum of Understanding on further devolution to London. The agreement with the Greater London Authority (GLA) and London Councils includes joint working to explore the benefits of, and scope for, locally-delivered criminal justice services; action to tackle congestion; and a taskforce to explore piloting a new approach to funding infrastructure. The agreement also commits to explore options for devolving greater powers and flexibilities over the administration of business rates and greater local influence over careers services and employment support services, as well as working with the GLA and London Councils to ensure that employers can take advantage of the opportunities offered by the apprenticeship levy. The Government and London partners will agree a second Memorandum of Understanding on Health and Social Care. The Government is also in discussions with Greater Manchester on future transport funding.
Insurance Premium Tax (IPT) – The Government will legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12% from 1 June 2017, as announced at Autumn Statement 2016.
Tampon Tax Fund for women’s charities – A range of women’s charities across the UK, including those that tackle violence against women and girls, will collectively benefit from £12 million as part of the 2016-17 round of the Tampon Tax Fund. The list of charities will be published before the end of March
Value Added Tax (VAT): Registration and deregistration thresholds – From 1 April 2017 the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.
HMRC large business risk review – HMRC will work constructively with businesses and interested parties to consult over the summer on its process for risk profiling large businesses and promoting stronger compliance.
Employment Allowance – HMRC is actively monitoring National Insurance Employment Allowance compliance following reports of some businesses using avoidance schemes to avoid paying the correct amount of NICs. The Government will consider taking further action in the event that this avoidance continues.
Income tax & National Insurance – Since 2010, the government has taken action to reduce taxes and enable working people to keep more of what they earn. Next month, the government will build on this progress by increasing the personal allowance by more than inflation for the seventh consecutive year, raising it by £500 to £11,500. This means the amount someone can earn tax-free in 2017-18 will be over 75% higher than in 2010. Raising the personal allowance to £11,500, alongside a £2,000 increase to the higher rate threshold, will cut income tax for 31 million taxpayers compared to the beginning of this Parliament – including taking 1.3 million out of income tax altogether.
Class 4 National Insurance contributions (NICs) – The government has already announced that it will abolish Class 2 NICs – a flat-rate charge on the self-employed – from April 2018. On its own this would increase the differential between the rates of National Insurance paid by employees and those paid by the self-employed. Since April 2016, the self-employed also have access to the same State Pension as employees, worth £1,800 a year more to a self-employed individual than under the previous system. To reduce the differential and reflect more equal pension entitlement, the Budget announces that the main rate of Class 4 NICs will increase from 9% to 10% in April 2018, and to 11% in April 2019 (NB the Chancellor has since decided to reverse this decision). Taken together with the abolition of Class 2 NICs, this means that only self-employed individuals with profits above £16,250 will have to pay more NICs. Alongside Matthew Taylor’s review into employment practices, the government will consider whether there is a case for greater parity in parental benefits between the employed and self-employed.
Dividend allowance – The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. This will reduce the tax differential between the employed and self-employed on the one hand and those working through a company on the other, and raise revenue to invest in our public services. It will ensure that support for investors is more effectively targeted, and make the total amount of income they can receive tax-free fairer and more affordable. This takes account of the increased ISA allowance, which will rise to £20,000 from this April, as well as further increases to the tax-free personal allowance which is additional to the dividend allowance. A £2,000 dividend allowance will continue to mean that 80% of general investors pay no dividend tax, including those with sizeable investments (typically, up to £50,000).
Avoidance – The following anti-avoidance legislation has been announced:
- Promoters of Tax Avoidance Schemes (POTAS) – New legislation will ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business. This will ensure that HMRC can apply the POTAS regime as intended.
- Strengthening tax avoidance sanctions and deterrents – As announced at Autumn Statement 2016, the government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. This new regime reflects an extensive consultation and input from stakeholders. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements.
Stamp Duty Land Tax – As a result of consultation, the government will delay the reduction in the filing and payment window until 2018-19.
Off-payroll working in the public sector – A policy paper has been published changes to the intermediaries legislation.
Corporation Tax relief for museums and galleries – As announced at Budget 2016, the government will legislate in Finance Bill 2017 to introduce a new tax relief for museums and galleries who develop new exhibitions including those that are toured. Autumn Statement 2016 announced the rates for the relief as 25% for touring exhibitions and 20% for non-touring exhibitions. The relief will allow museums and galleries to claim a credit worth up to £100,000 on exhibitions that are toured and £80,000 on non-touring exhibitions. The maximum credit allowable is the equivalent of qualifying expenditure of £500,000. Following consultation on the draft legislation, the legislation will be revised to allow for exhibitions which have a live performances as part of the exhibition (but where a live performance is not the main focus of the exhibition). The measure will take effect from 1 April 2017. For details see the Museums and galleries tax relief TIIN published at Autumn Statement 2016.
Notes for editors
The Charity Tax Group (CTG) has over 500 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.
You can also read CTG’s recent pre-Budget submission here.