Small Charities Coalition
Gift Aid & Charity taxation
including VAT
Detlev Anderson
Charities Partner– Ryecroft Glenton
12 June 2012
Ryecroft Glenton Chartered Accountants
Contents
Page
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Budget 2011
Budget 2012
Gift Aid
- how it works
- providing benefits
- register to receive gift aid
- repayment claims
- HMRC audits
- declaration
- small donations scheme
Charity Taxation
VAT Budget 2012
VAT & Charities
Questions
1
2
3
4-8
9
10 - 12
13
14
15
16
17 - 23
24 – 26
27 – 55
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Budget 2011
The Budget 2011 introduced measures to encourage charitable giving: -
1
•
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 preeminent objects to the nation, will be introduced in 2012-13.
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Budget 2012
2
•
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
significantly on charities that depend on large donations from individuals.
•
In the face of the criticism the Government has withdrawn this proposal.
impact
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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.
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Gift Aid – how it works
GIFT AID - for basic rate individual taxpayer (20%)
After 5th April 2011
4
Donation
£10.00
Gift aid
£2.50
Total value to charity
£12.50
Cost to tax payer is
£10.00
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Gift Aid – how it works
GIFT AID - for higher rate individual taxpayer (40%)
After 5th April 2011
Donation (80%)
£10.00
Gift aid (20%)
£2.50
Total value to charity (100%)
£12.50
Initial cost to tax payer is
£10.00
Less tax (40% - 20%)
Eventual cost to tax payer
5
£2.50
£7.50
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Gift Aid – how it works
GIFT AID - for additional rate individual taxpayer (50%)
After 5th April 2011
Donation (80%)
£10.00
Gift aid (20%)
£2.50
Total value to charity (100%)
£12.50
Initial cost to tax payer is
£10.00
Less tax recovered (50% - 20%)
Eventual cost to tax payer
6
£3.75
£6.25
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Gift Aid – how it works
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
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Gift Aid – how it works
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;
8
•
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‘.
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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.
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)
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.
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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
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Gift Aid – register to receive gift aid
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
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Gift Aid – register to receive gift aid
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
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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.
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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.
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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
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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.
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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
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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.
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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.
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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:
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
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).
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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.
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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.
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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
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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.
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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.
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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).
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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.
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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.
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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)
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VAT & Charities
Outside the scope
• Covenants
• Grants
• Donations
• Religious offertories
• Flag days, etc.
• Legacies
• Loans
• Investment income
• Dividends
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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
•
•
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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
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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
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VAT & Charities
Zero rated
• Food
• Water
• Books and other printed matter
• Talking books for the blind
• International services
• Children’s clothing & footwear
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VAT & Charities
Reduced rates
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•
Domestic fuel or power
•
Residential conversions
•
Installation of energy saving
materials
•
Residential renovations and
alterations
•
Grant funded installation of
heating equipment, security
goods or connection of gas supply
•
Contraceptive products
•
Welfare advice or information
•
Installation of mobility aids for
the elderly
•
Smoking cessation products
•
Women’s sanitary products
•
Children’s car seats
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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
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VAT & Charities
Standard rate -
continued
• Charity Challenge Events - VAT issues if participants must pay
36
•
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.
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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.
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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.
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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.
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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.
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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
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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.
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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).
•
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For more information see VAT Notice 708 Buildings & Construction.
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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.
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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.
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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.
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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.
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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.
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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;
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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.
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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.
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VAT & Charities
Water
• Certain supplies of water for domestic and non-industrial use are zerorated. 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.
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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.
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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.
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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.
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Questions?
56
Detlev Anderson
Charities Partner
Ryecroft Glenton
32 Portland Terrace
Newcastle upon Tyne
0191 281 1292
detlevanderson@ryecroft-glenton.co.uk
Disclaimer
This presentation and any accompanying notes are
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accepted for any errors of fact or opinion they may
contain. Professional advice should be obtained
before applying the information in particular
circumstances..