The Chancellor today published the 2018 Budget. You can also read the Overview of Tax Legislation and Rates document here.

A full summary can be read below.

Responding to the Budget, CTG Chairman John Hemming commented:

“We are very pleased that a number of the changes that were announced followed representations made in our Budget submission and through direct lobbying of the Charity Tax Minister by our members at CTG’s Annual Conference earlier this year, and since.

“This includes a relaxation in respect of the administrative requirements for retail Gift Aid,  an increase in the donation limit for GASDS to £30 and an increase in the miscellaneous trading limit from £50k per annum to £80k per annum. CTG has also welcomed funding awards for refurbishment of village halls and support for armed forces mental health services, which have been given in lieu VAT costs, as they recognise the obstacles that irrecoverable VAT present to charities. However, the Government needs to go much further in committing to a wider strategic review of how the VAT system affects charities.

“Other announcements in the Budget related to the VAT registration threshold (frozen for two years), off-payroll working (extended to the private sector, but not until 2020 with small charities exempt), taxation of trusts (consultation announced), business rates cuts for retail properties and moves to legislate the existing tax treatment of expenses for unpaid officeholders.

“Despite recent speculation that the Government would introduce restrictions on fees on Gift Aid processed by intermediaries, there was no announcement to this effect. Feedback that we have received from the Treasury indicates that the Minister had listened to feedback from stakeholders that dialogue between the sector and intermediaries was best and had welcomed the steps that some intermediaries had taken to address the concerns that had been raised. JustGiving have accepted an invitation to speak to members of CTG’s Gift Aid working group as part of their planned consultation with charities. Furthermore, despite some concerns that Insurance Premium Tax could be increased again, there were no announcements to this effect. CTG will continue to call for a review of IPT for charities given the disproportionate impact it can have.”

If you have any questions about the Budget or would like to provide any feedback on the announcements, please contact us at info@charitytaxgroup.org.uk or at 02072221265.

Summary of developments relevant to charities

Gift Aid and GASDS

From April 2019, the Government will introduce a package of measures to reduce administrative burdens on charities. These will:

• increase the upper limit for trading that charities can carry out without incurring a tax liability. This will allow charities to undertake more trading activity before a trading subsidiary is needed and is a welcome change having been at the same rate for almost 20 years. A Tax Impact and Information note can be read here.

This measure will increase the rates to:
Annual charity income	Maximum non-primary purpose trading
Under £32,000	£8,000
£32,000-£320,000	25% of income
Over £320,000	£80,000

• allow charity shops using the Retail Gift Aid Scheme to send letters to donors every three years when their goods raise less than £20 a year, rather than every tax year. This follows work with HMRC by CTG and the Charity Retail Association.
• increase the individual donation limit under the Gift Aid Small Donations Scheme to £30, which applies to small collections where it is impractical to obtain a Gift Aid declaration. A Tax Impact and Information note can be read here.
• update the Gift Aid donor benefit thresholds (as previously announced last year).

Funding

The Government has announced the following funding awards:

• Village halls, Miners’ Welfare facilities and Armed Forces organisations’ facilities: the Government will provide up to £8 million to help with the cost of repairs and alterations to village halls, Miners’ Welfare facilities and Armed Forces organisations’ facilities. We understand that the amount allocated to village halls will be £3m which will be accessible for one year. Representatives from ACRE, the group representing village halls, lobbied the Minister for funding at CTG’s Annual Tax Conference earlier this year.
• First World War commemoration: the Government will commit £10 million to support veterans with mental health needs, and will make available an additional £1 million for First World War battlefield visits for school students.
• Holocaust commemoration and education fund: tthe Government will provide a charitable organisation with £1.7 million for educational projects in schools to mark the upcoming 75th anniversary of the liberation of the Bergen-Belsen concentration camps.
• Support for air ambulance trusts: the Government is making available £10 million of capital funding in England to support air ambulances.
• Avoiding food waste: The Government will provide £15 million to charities and others to distribute surplus food given the large amount that is needlessly wasted.

CTG welcomes these funding awards, particularly where they are given in lieu of VAT costs, as they recognise the obstacles that irrecoverable VAT present to charities. However, the Government needs to go much further in committing to a wider strategic review of how the VAT system affects charities.

Off-payroll working in the private sector

As expected the Government will extend the off-payroll working rules (known as IR35) in the private sector. This follows consultation and the roll-out of reform in the public sector. Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt, and HMRC will provide support and guidance to medium and large organisations ahead of implementation. CTG understands from HM Treasury officials that the threshold for small companies will follow that in the Companies Act. Existing rules will continue to apply for public sector organisations (which does include some charities).

CTG had called for more time for charities to adapt to the new rules in its response to the HMRC consultation on IR35. The Government has published a summary of responses document here.

VAT 

VAT registration threshold

The Government has published a response to the call for evidence on the design of the VAT threshold (CTG’s response can be read here). The responses to the call for evidence did not provide a clear option for reform. The VAT threshold will therefore be maintained at the current level of £85,000 for a further 2 years until April 2022. The Government will look again at the possibility of introducing a smoothing mechanism once the terms of EU exit are clear. Anti-avoidance rules that are to apply with immediate effect. A Tax Information and Impact Note can be read here.

CTG welcomes this news as had there been a decrease in the VAT threshold additional smaller charities would have been subject to Making Tax Digital reporting requirements, which are already proving complex for larger charities.

VAT and higher education

The Government will amend VAT law to ensure continuity of VAT treatment for English higher education providers under the Higher Education and Research Act by enabling bodies registered with the Office for Students in the Approved (fee cap) category to exempt supplies of education.

VAT grouping

The Government will legislate in Finance Bill 2018-19 to extend the eligibility to join a VAT group to certain non-corporate entities. In addition, revised VAT grouping guidance will be issued to:

• amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT
• provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments. These guidance changes will be published in draft and come into effect from 1 April 2019.

Community Infrastructure Levy

The Government has published a summary of responses document to its consultation on reforms to the system of developer contributions which includes a focus on the future of CIL. Importantly, the Government has confirmed that it “intends to retain current exemptions” which includes the charity exemption (despite calls from some stakeholders for this to be dropped), something CTG called for in its consultation response.

Employment Allowance 

To target the Employment Allowance to support smaller businesses, from April 2020 the Government will restrict access to employers with an employer National Insurance contributions (NICs) bill below £100,000 in their previous tax year. The EA provides businesses and charities with up to £3,000 off their employer NICs bill.

Income tax

The Budget announces that the Government will meet its commitment to raise the PA to £12,500 and the HRT to £50,000 from April 2019, one year earlier than planned. These thresholds will remain at the same levels in 2020-21 and then increase by CPI.

Vehicle Excise Duty (VED): Blood Bikes

To align the tax treatment of the transportation of blood and medical supplies by the national charity Blood Bikes with other emergency vehicles, the Government will introduce an exemption for the purpose-built vehicles operated by Blood Bikes from April 2020.

Trusts consultation

As announced at Autumn Budget 2017, the Government will publish a consultation on the taxation of trusts, to make the taxation of trusts simpler, fairer and more transparent. We understand from HM Treasury officials that a consultation will be published on 7 November 2018. We have stressed the need to consider the implications of any proposed changes for charitable trusts.

Business rates relief

To provide upfront support through the business rates system, the Government is cutting bills by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties, for 2 years from April 2019, subject to state aid limits. The main impact will presumably be on charity shops, helping in particular those operated by trading subsidiaries and not currently protected by mandatory/discretionary relief. However, some commentators have suggested that this could lead to higher rents.

Profit fragmentation

As announced at Autumn Budget 2017, the Government will legislate in Finance Bill 2018-19 to introduce targeted legislation that aims to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The taxable UK profits will be increased to the actual, commercial level.

Corporate capital loss restriction

To ensure that large companies pay tax when they make significant capital gains, the Government will bring the tax treatment of corporate capital losses into line with the treatment of income losses. From 1 April 2020, the Government will restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. The measure will include an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year, meaning that 99% of companies will be unaffected. The Government will consult on the detailed design of this change and legislate in Finance Bill 2019-20. The measure will be subject to an anti-avoidance rules that are to apply with immediate effect.

Fuel duty

Fuel duty will remain frozen.

National Living Wage (NLW)

From April 2019, the NLW will rise by 4.9 per cent, from £7.83 to £8.21 per hour.

Legislating the existing tax treatment of expenses for unpaid officeholders

The Government will legislate in Finance Bill 2019-20 so that expenses paid or reimbursed to unpaid office-holders are exempt from income tax when incurred because of their voluntary duties. This places the existing concessionary treatment on to a statutory basis, providing certainty for those organisations engaging unpaid office-holders. Corresponding legislation will also be introduced to mirror the income tax exemption for National Insurance contributions. The change will have effect on and after Royal Assent of Finance Bill 2019-20.

Intermediaries and Gift Aid fees

Despite recent speculation that the Government would announced steps to restrict fees on Gift Aid payments, there was no announcement to this effect. Feedback that we have received from the Treasury indicates that the Minister had listened to feedback from stakeholders that dialogue between the sector and intermediaries was best and had welcomed the steps that some intermediaries had taken to address the concerns that had been raised. JustGiving have accepted an invitation to speak to members of CTG’s Gift Aid working group as part of their planned consulation with charities.

Insurance Premium Tax

Despite some concerns that IPT could be increased again, there were no announcements to this effect. CTG will continue to call for a review of IPT for charities given the disproportionate impact it can have.

Notes:

The Charity Tax Group (CTG) has over 650 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.