detlev anderson charities partner– ryecroft glenton 12 june 2012 ryecroft glenton chartered...

Detlev Anderson

Charities Partner– Ryecroft Glenton

12 June 2012

Ryecroft Glenton Chartered Accountants

Small Charities CoalitionGift Aid & Charity taxation including VAT

Contents

PageBudget 2011 1Budget 2012 2Gift Aid 3

- how it works 4 - 8- providing benefits 9

- register to receive gift aid 10 - 12- repayment claims 13

- HMRC audits 14- declaration 15

- small donations scheme 16Charity Taxation 17 - 23VAT Budget 2012 24 – 26VAT & Charities 27 – 55Questions 56


Budget 2011

1 Ryecroft Glenton Chartered Accountants

The Budget 2011 introduced measures to encourage charitable giving: -

•from April 2011 the upper limit on benefits that charities may provide to Gift Aid donors

was increased to £2,500 to enable charities to better recognise the contributions of their

largest donors;

•for deaths occurring from 6 April 2012, a reduced rate of inheritance tax (IHT) to 36%

will apply where 10% or more of a deceased‘s net estate (after deducting IHT

exemptions, reliefs and the nil-rate band) is left to charity; and

•a scheme to provide a tax reduction to people who, during their lifetime, donate pre-

eminent objects to the nation, will be introduced in 2012-13.

Budget 2012


• The Budget 2012 introduced a controversial measure to cap income tax relief for

charity donors.

• The Chancellor George Osborne recently announced that the highly controversial plan

to cap income tax relief for charity donors would be dropped entirely.

• The proposal, which emerged unexpectedly in this year's Budget, set a limit to the

amount of otherwise uncapped tax relief each taxpayer could claim against income.

The limit was to be set at the larger of £50,000, or 25 per cent of a person's total

income.

• Many organisations had expressed concern that the measure could impact

significantly on charities that depend on large donations from individuals.

• In the face of the criticism the Government has withdrawn this proposal.

Gift Aid


• Gift Aid is a way for charities or Community Amateur Sports

Clubs (CASCs) to increase the value of monetary gifts from

UK taxpayers by claiming back the basic rate tax paid by

the donor.

• It can increase the value of donations by a quarter at no

extra cost to the donor. Gift Aid is worth nearly £1 billion a

year to charities and their donors.

• We will look at how gift aid works and how to register your

charity to receive gift aid.


Gift Aid – how it works

GIFT AID - for basic rate individual taxpayer (20%)

After 5th April 2011

Donation £10.00

Gift aid £2.50

Total value to charity £12.50Cost to tax payer is £10.00

4



GIFT AID - for higher rate individual taxpayer (40%)


Donation (80%) £10.00

Gift aid (20%) £2.50

Total value to charity (100%) £12.50Initial cost to tax payer is £10.00

Less tax (40% - 20%) £2.50

Eventual cost to tax payer £7.50

5



GIFT AID - for additional rate individual taxpayer (50%)


Donation (80%) £10.00

Gift aid (20%) £2.50

Total value to charity (100%) £12.50Initial cost to tax payer is £10.00

Less tax recovered (50% - 20%)

£3.75

Eventual cost to tax payer £6.256



Donations that qualify for Gift Aid

Gift Aid can only be claimed on gifts of money from individuals, sole

traders or partnerships, in any of the following forms:

•cash

•cheque

•Direct Debit

•credit or debit card

•postal order

•standing order or telegraphic transfer



Payments that don't qualify for Gift Aid: -•donations of money from a company;

•donations in the form of a loan waiver or debt conversion - for example an individual may lend money

to a charity and then, at a later date, agree that it does not have to be paid back - this is not a gift of

money it is the waiver of a loan;

•gifts made on behalf of other people for example a membership subscription paid on behalf of

somebody else - this is a gift of membership from the payer to the member not a gift made to the

charity;

•gifts that come with a condition about repayment;

•gifts with a condition that it buys goods or services from the donor;

•payments received in return for goods or services - these are not gifts - for example payment for

admission to a concert, payment for a raffle ticket, an entrance fee for an adventure challenge event

etc.;

•a 'minimum donation' where there is no choice about payment - this is simply a fee for goods or

services, it is not a gift; and

•gifts made using 'charity vouchers' or 'charity cheques‘.

Gift Aid – providing benefits


Providing benefits in return for donations: -A charity can give donors modest (low value) tokens of appreciation - called 'benefits' - in

order to acknowledge a gift but there are limits on their value.

The key principle to remember is that if any donor - or person connected to the donor -

benefits significantly from their donation, then their donation(s) will not qualify for Gift

Aid.

Benefit limits for donations

Amount of donation Maximum value of benefits

£0 - £100 25% of the donation

£101 - £1,000 £25

£1,001+ Made between 6 April 2007 and 5 April 2011

5% of the donation (up to a maximum of £500)

Made on or after 6 April 2011 5% of the donation (up to a maximum of £2,500)

Gift Aid – register to receive gift aid


A charity can claim tax back on Gift Aid donations in the same way a charity can claim other tax relief.

How does a charity register to receive Gift Aid?

If a body is required to register with a charity regulator (e.g. the Charity commission) it must do so

before applying to HMRC for recognition as a charity for tax purposes.

Once a charity has registered with the regulator it can make an application to HMRC for recognition as a

charity for tax purposes. A written application should be made using form ChA1.

Once a charity has been recognised as a charity for tax purposes it may also be entitled to VAT reliefs.

To do this you need to complete form ChA1.

Before a charity can make a repayment claim someone must be nominated to be an authorised official

and, if necessary, someone to be a nominee. This means that they can sign repayment claim forms and

receive money on behalf of the charity.

www.hmrc.gov.uk/charities/cha1.pdf



Charity trustees and anyone involved in the day-to-day running of a charity should also

read the basic guidance on 'Fit and Proper Persons'. This guidance explains the need for

charities to ensure that their managers are suitable to hold such posts and, in particular,

that they haven't been involved in tax fraud or disqualified from being a charity trustee.

It also includes a model declaration managers can sign.

www.hmrc.gov.uk/charities/guidance-notes/chapter2/model-dec-ff-persons.pdf

Once complete the form ChA1 should be sent to

HM Revenue & Customs Charities

St Johns House

Merton Road

Liverpool

L75 1BB



Once HMRC Charities recognises a charity for tax purposes, they will set up a

record so that any repayment claims made can be processed.

They will then send: -

•a reference number for use on all claims and correspondence

•all the forms needed for the first repayment claim

•the date from which charitable status is effective

Gift Aid – repayment claims


The R68(i) 'Gift Aid and tax repayment claims’ form is the starting point for

any repayment claim that the charity makes.

The form uses tables known as ‘schedules’ to record the names of donors who

have completed a Gift Aid declaration, and the amounts they have donated.

It also asks for details of other income received such as bank or building

society interest from which tax has been deducted.

www.hmrc.gov.uk/charities/r68-claim.pdf

Gift Aid claims may be made within four years of the tax year or accounting

period in which the donations are received.

Gift Aid – HMRC audits


Registered charities must keep an auditable record of: -

•all Gift Aid declarations and confirmation that the donor has been advised

that they must pay at least as much UK tax (for the tax year that they donate)

as the amount the charity will reclaim on the donation;

•any cancellations of Gift Aid declarations;

•any benefits you provide to donors.

Records must be kept in the original format or scanned and stored

electronically. A charity must be able to locate individual declarations on

request by HMRC for audit checks.

Gift Aid declaration


There is no set design for a Gift Aid declaration and a declaration by a donor

can be made in writing, orally or electronically.

HMRC provides 'model' Gift Aid declarations for different situations - these are

examples of Gift Aid declarations with wording printed on them to make them

easy to use.

One off donation www.hmrc.gov.uk/charities/single-donation.pdf

Past and future donations www.hmrc.gov.uk/charities/appendix_b1.pdf

Sponsorship form www.hmrc.gov.uk/charities/appendix_b2.pdf

Gift Aid Small Donations Scheme


• From April 2013 charities will be able to claim the Gift Aid-style top-up

payments from HMRC without needing to get a Gift Aid declaration from

donors. The scheme’s details have not been finalised yet but: -

• The top-up payment will be 25p for every pound collected in the UK. The

maximum amount of donations on which the top up can apply will be

£5,000, where the individual amounts of donations are £20 or less.

• HMRC will administer claims in the same way as for Gift Aid claims,

including similar powers to enquire into GASDS claims.

• However claims under the GASDS must be made within one year of the end

of the tax year in which the small donations are collected.

Charity taxation


• “Charities need to be familiar with the tax and VAT rules that apply to

trading profits and business activities when they are deciding how to

organise their trading activities”. – HMRC guidance

• The Charity Commission also produce guidance in the leaflet CC35 –

Trustees, trading and tax available at: -

www.charitycommission.gov.uk/Publications/cc35.aspx

Charity taxation


• Usually, a charity’s trading involves the provision of goods or services to

customers on a commercial basis. Simply because a venture is a one-off or

occasional does not mean that it will not be treated as trading for tax

purposes.

• When deciding whether an activity amounts to trading it is not relevant that

the profits are intended to be used for charitable purposes.

• For VAT purposes business activity is anything that is carried on for a

consideration. This means that where a charity supplies goods or services

for a consideration it is in the same VAT position as a commercial

organisation. Generally such supplies will be subject to the standard rate of

VAT.

Charity taxation


• Primary purpose – not taxable

• Ancillary to the carrying out of a primary purpose – not taxable

• Non-primary purpose – taxable

• Beneficiary trading – not taxable

• For VAT purposes there is no distinction between primary purpose,

beneficiary and non-primary purpose trading. Each can qualify as business

activities for VAT purposes and lead to a need for VAT registration.

Charity taxation – exemption for “small trading”


The annual turnover limit is: -

•£5,000; or

•if the turnover is greater than £5,000, 25 % of the charity's total incoming resources, subject to an

overall upper limit of £50,000.

This table illustrates the application of these rules:

For the purpose of this limit, "total incoming resources" means the total receipts of the charity for the

year from all sources (grants, donations, investment income, all trading receipts, etc.), calculated in

accordance with normal charity accounting rules (whether the income would otherwise be taxable or

not).

Total incoming resources of the charity Maximum permitted turnover

Under £20,000 £5,000

£20,001 to £200,000 25% of charity's total incoming resources

Over £200,000 £50,000

Charity taxation


Where trading (other than trading in pursuit of its charitable objects) involves significant

risk to a charity's assets, it must be undertaken by a trading subsidiary. But even where

it is not essential for the trading to be undertaken by a trading subsidiary, the use of

trading subsidiaries may produce benefits, for example in reducing tax liabilities. In

particular, trading subsidiaries may make donations to their parent charity as 'Gift Aid',

so reducing or eliminating the profits of the subsidiary which are liable to tax.

However the parent charity's trustees must be able to justify financial support for a

trading subsidiary as an appropriate investment of the charity's resources. In all cases

the interests of the charity must be paramount. Any investment should be consistent

with the charity's overall investment policy.

Charity taxation


Trustees must, whenever investing a charity's resources: -

•be certain that the investment is within the charity's investment powers;

•exercise such care and skill in the investment process as is reasonable in the circumstances;

•have regard to the suitability to the charity of investments of the same kind as the particular

investment which it is proposed to make;

•have regard to the suitability of the particular investment in question, as an investment of the kind

which it seems appropriate to make;

•have regard to the need for diversification of investments, as appropriate to the circumstances of the

charity; and

•ordinarily obtain and consider advice about the investment from a person reasonably believed by the

trustees to be qualified by ability in and practical experience of financial and other matters; the advice

needs to have regard to the suitability and diversification points mentioned above.

Charity taxation


Non-domestic premises occupied and used by a charity are entitled to 80% mandatory rate relief, known

as 'charity rate relief'. The remaining 20% may be waived at the discretion of the rating authority. In

order to qualify for this relief, a property must be:

• occupied by a charity, or the trustees of a charity; and

• used wholly or mainly for charitable purposes.

In this context, the term 'charitable purposes' normally excludes fundraising activities, but includes the

sale of donated goods.

This mandatory relief is not available in the case of premises occupied by a trading subsidiary. However

rating authorities have discretion to grant rate relief to some bodies which are not charities.

http://www.ryecroft-glenton.co.uk/downloads/Charitable%20Giving%20Factsheet.pdf

VAT Budget 2012


Listed Buildings

•During the last budget the government announced a change to the VAT

treatment of approved alterations to listed buildings.

•Previously, exemption from VAT was available for approved alterations

carried out to listed buildings that were used for residential, relevant

residential or relevant charitable purposes.

•Repairs and maintenance to listed building have always been standard rated.

VAT Budget 2012


Listed Buildings - continued

•The changes have removed most of the exemption available.

•The changes do not come into force until October 2012.

•However there is anti-forestalling rules in place to prevent manipulation of

the rules.

•These rules allow zero rating to remain for any work carried out under

contracts in place prior to 21 March 2012, until 21 March 2013.

VAT & Charities


Charities are subject to the same VAT rules as any

other organisation.

There are, however, a number of VAT reliefs and exemptions available

specifically for charities, subject to certain conditions and restrictions.

We will look briefly at: -

•working out whether your charity needs to register for VAT;

•the sorts of activities you may have to charge VAT on; and

•VAT reliefs on goods and services bought by charities (and, where applicable,

certain other organisations).

VAT & Charities


Does your charity need to register for VAT?

•Your charity must register for VAT if turnover for the previous 12 months

from 'taxable business activities' is above the VAT registration threshold of

£77,000 (from 1st April 2012). The threshold changes annually.

•You can register voluntarily so long as you have some business activities

subject to VAT.

•If you don’t want to register but have some business activities subject to VAT

you must monitor your taxable income.

VAT & Charities


What counts as business activity for VAT purposes?

•If your charity provides goods or services for a charge, you are generally

carrying out a business activity - because you are supplying something to

someone in return for a payment.

•This applies even though you are a charity and the goods and services you

supply are being provided in order to meet your charity's aims.

VAT & Charities


Types of activity for VAT purposes

•Outside the scope (non business)

•Exempt (business)

•Zero rated - 0% (business)

•Reduced rate – 5% (business)

•Standard rate – 20% (business)

VAT & Charities


Outside the scope •Covenants

•Grants

•Donations

•Religious offertories

•Flag days, etc.

•Legacies

•Loans

•Investment income

•Dividends

VAT & Charities


Exempt• Income from Land & Buildings

• Certain exceptions• Option to tax

• Insurance• Postal services• Betting, gaming and lotteries• Financial services• Education

• Eligible bodies

• Health and welfare• Burial & Cremation

• Subscriptions to trade unions, professional and other interest bodies

• Sports, sports competitions and physical education

• Works of art• Fund raising by charities• Admission to museums, art

galleries, zoos & performances• Where input VAT has been

blocked• Investment gold

VAT & Charities


Exempt - continued

•Fundraising – specific exemption for fund raising events

•Conditions• The event must be organised for charitable purposes

• The primary purpose must be to raise money

• The event must be promoted as primarily to raise money

•The event must be organised• By a charity

• By wholly owned trading subsidiary

• Event promoted to raise money

•Exemption does not apply more than 15 event in the same location

•Other conditions

VAT & Charities


Zero rated

•Food

•Water

•Books and other printed matter

•Talking books for the blind

•International services

•Children’s clothing & footwear

VAT & Charities


Reduced rates• Domestic fuel or power

• Installation of energy saving materials

• Grant funded installation of heating equipment, security goods or connection of gas supply

• Women’s sanitary products

• Children’s car seats

• Residential conversions

• Residential renovations and alterations

• Contraceptive products

• Welfare advice or information

• Installation of mobility aids for the elderly

• Smoking cessation products

VAT & Charities


Standard rate

•Every business transaction is subject to VAT at the standard rate unless it is

Exempt, Zero Rated or subject to the Reduced Rates. These include: -

•Non exempt fund raising

•Catering

•Sale of merchandise

•Conferences

•Sponsorship

•Membership

VAT & Charities


Standard rate - continued

•Charity Challenge Events - VAT issues if participants must pay• A registration fee;

• A deposit; and/or

• Payment of a proportion of the target figure that the participant is aiming to

raise through sponsorship the charity is making a supply.

VAT & Charities


Who is entitled to the VAT reliefs and exemptions

for charities?

In order to take advantage of the VAT reliefs and exemptions for charities the

charity must hold evidence that it is registered with the Charity Commission

for England and Wales.

If the charity is exempt from registration with the Charity Commission or is a

Scottish or Northern Ireland charity - then it must have evidence that it has

been formally recognised as a charity by HM Revenue & Customs (HMRC) for

tax purposes.

VAT & Charities


Should your charity be charged VAT on purchases?

When your charity buys goods and services you will normally have to pay VAT

just like anyone else.

There are VAT reliefs available for charities on certain goods and services

which mean they may be subject to the zero rate or reduced rate of VAT.

To get these reliefs you will have to provide the person supplying the goods to

you with evidence that you are a charity and a written eligibility declaration or

certificate confirming that the conditions for the relief have been met.

See VAT Notice 701/6.

VAT & Charities


Advertising and goods associated with donations

•Your charity can advertise VAT-free in any medium (other than your own)

that communicates with the public.

•Adverts qualifying for the relief can be on any subject, including staff

recruitment.

•Charities can also purchase pre-printed collecting boxes, envelopes, appeal

letters, low cost lapel stickers, emblems and badges that might be given as an

acknowledgment of a donation can all be supplied to at the zero rate.

•Find out more in VAT Notice 701/58.

VAT & Charities


Advertising and goods associated with donations – cont.

•If a printer produces a package of printed material for your charity, some of

which is zero-rated and some of which is standard-rated, the printer may be

able to zero rate the entire package. This is known as the ‘package test’.

•Find out more by reading VAT Notice 701/10.

VAT & Charities


Aids for people with disabilities

If your charity is purchasing certain goods and services to make available to

disabled people for their personal or domestic use they can be zero-rated.

•VAT Notice 701/7 Reliefs for disabled people

•VAT Notice 701/59 Motor vehicles for disabled people

•VAT Notice 701/6 Charity funded equipment

VAT & Charities


Equipment for producing talking books and newspapers

•If your charity cares for the blind and the severely visually impaired, you can

obtain zero rating for purchases of sound recording and reproduction

equipment that has been designed or specially adapted for recording or

reproducing speech so long as the equipment is not available for use by

anyone other than the blind or severely visually impaired.

•The zero rating also covers radios and cassette recorders purchased for free

loan to the blind, and the repair or maintenance of any of this equipment. The

supply of cassette tapes is standard-rated.

•For more information see paragraph 6.1.6 of VAT Notice 701/1 Charities.

VAT & Charities


Buildings and construction

•The construction of buildings, intended to be used by your charity solely for

non-business purposes or as a village hall or similar, can be zero-rated subject

to certain criteria being met.

•Zero-rating also applies to the construction of buildings intended to be used

solely for a ‘relevant residential’ purpose (for example, a care home, hospice

or student accommodation).

•For more information see VAT Notice 708 Buildings & Construction.

VAT & Charities


Buildings and construction - continued

•Your charity may also benefit from zero-rating for the construction of a ramp

or widening of a doorway or passage to enable disabled people to gain access,

or move about in, your charity building.

•It could also cover providing, extending or adapting a washroom or lavatory

for disabled people.

•For more information see VAT Notice 701/7 Reliefs for disabled people.

VAT & Charities


Installation of energy-saving materials in buildings

•The installation of energy-saving materials, such as central heating and

insulation in residential accommodation or in a building used solely for a

relevant charitable purpose is liable to VAT at the reduced rate.

•You can find out more in VAT Notice 708/6 Energy-saving materials.

VAT & Charities


First sale of, or long lease in, a building

•The first sale or long lease of a building intended for use by a charity solely

for non-business purposes or as a village hall or similar may be zero-rated.

•Zero-rating can also apply to buildings intended for use for a 'relevant

residential purpose'.

•Details of the conditions that must be met for the zero-rating to apply are

contained in section 4 of VAT Notice 708 Buildings and construction.

VAT & Charities


Short lease or rent of a building

•The short lease or rent of a building is normally exempt from VAT but the

owner can choose to waive this exemption and ‘opt to tax’ his supplies of the

building.

•If the charity tenant uses the premises solely for non business activities or as

a village hall or similar, other than as an office, the option to tax will not apply

and the lease or rent will remain exempt from VAT.

•Neither will the option to tax apply if your charity uses the building solely for

residential accommodation.

VAT & Charities


Short lease or rent of a building - continued

•If your charity rents a building (or part of a building) and intends to use it for

one of these purposes you should tell your landlord.

•Find out more in section 3 of VAT Notice 742A Opting to tax land and

buildings.

VAT & Charities


Fuel, power and water

Your charity has to pay VAT on supplies of fuel and power. However, you can

claim the reduced rate of 5 per cent where fuel and power is supplied for a

qualifying use. Qualifying use means either: -

•supplied for use in a dwelling or certain other types of residential

accommodation, such as a children’s home, hospice or care home for elderly

or disabled people;

•supplied for use in charitable non-business activities, such as free day care

for disabled people;

VAT & Charities


Fuel, power and water - continued

•Deliveries of small quantities of fuel and power are automatically treated as

being for a qualifying use. Electricity supplied at a rate not exceeding 1,000

kilowatt hours a month, or a delivery of not more than 2,300 litres of gas oil

will qualify for the reduced rate whatever the use of the building.

•If the fuel and power is supplied partly for a qualifying use, the supplier may

have to apportion the supply. You should provide the supplier with a certificate

declaring the percentage of the fuel and power that will be used for a

qualifying purpose.

•More details are in VAT Notice 701/19.

VAT & Charities


Climate Change Levy

•If your charity qualifies for the reduced rate for fuel and power, you will be

excluded from the Climate Change Levy.

VAT & Charities


Water

•Certain supplies of water for domestic and non-industrial use are zero-rated.

Follow the link below for more information about water and sewerage services.

•Find out more about water and sewerage services in VAT Notice 701/16.

VAT & Charities


Charity-funded medical, veterinary, scientific and

rescue equipment and ambulances

•Certain goods and services can be zero-rated when purchased by eligible

bodies (certain types of charities and other bodies) with charitable or donated

funds.

•They may also be zero-rated when purchased by any individual, group or

organisation for donation to an eligible body.

•The repair, maintenance and installation of qualifying goods will also be zero-

rated.

VAT & Charities


Medicinal products

•If your charity is engaged in the treatment or care of people or animals, or in

medical or veterinary research, you can purchase medicinal products at the

zero rate of VAT.

•If your charity is engaged in medical or veterinary research, you can buy

substances directly used for testing or for mixing with other substances in the

course of that research, at the zero rate of VAT.

VAT & Charities


Sea-going lifeboats and certain associated goods

and services, including fuel

•If your charity provides rescue or assistance at sea, you can purchase the

following goods and services relating to sea-going lifeboats at the zero rate of

VAT.

Questions?

56

Detlev Anderson

Charities Partner

Ryecroft Glenton

32 Portland Terrace

Newcastle upon Tyne

0191 281 1292

[email protected]

This presentation and any accompanying notes are made available on the basis that no liability is accepted for any errors of fact or opinion they may contain. Professional advice should be obtained before applying the information in particular circumstances..

Disclaimer

detlev anderson charities partner– ryecroft glenton 12 june 2012 ryecroft glenton chartered...

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