In today’s Budget Statement, the Chancellor announced a number of measures which he suggested were the “most radical reforms to charitable giving for 20 years”.

The Budget outlines a range of measures to be introduced in Finance Bill 2011 and Finance Bill 2012 as well as giving notice of planned consultations. All of the Budget documents can be accessed here and the most relevant measures for charities are outlined in this note.

CTG Chairman John Hemming commented:

CTG welcomes the range of measures designed to support charities, encourage charitable giving and increase incentives for philanthropy. As members know, CTG has been calling on the government to simplify the tax system for charities and believes that a number of the proposals will reduce the cost of administration and compliance for charities. The announcement that HMRC will work with the sector to develop a supporting electronic Gift Aid database is also highly welcome.  This is a simplification measure which CTG has been calling for as it will dramatically increase the efficiency of the Gift Aid process.

CTG particularly welcomes the announcement that Gift Aid will move online and that a charity can claim Gift Aid on donations of £10 or less subject to an annual limit of £5,000. Although this will help the large number of smaller charities and churches that rely on local collections to support their activities there are a number of practical points that need to be addressed around how the £10 limit will be monitored, for example on loose collections.

On a less positive note, CTG is disappointed about the lack of progress on implementing the mandatory cost-sharing exemption, with no announcement of the resumption of a formal consultation process or a commitment to a date for implementation. CTG will continue to engage the HMRC/HM Treasury consultation team to push for the implementation of this exemption as soon as possible.

Budget Announcements

Measures to be included in Finance Bill 2011:

Repeal three redundant reliefs for donors and charities

• charities: transitional relief on distributions (F(2)A 1997 s35)
• Millennium Gift Aid (FA 1998 s48)
• payroll giving 10 per cent supplement (FA 2000 s38, FA 2003 s146).

Increase the maximum Gift Aid benefit limit of £500 to £2500

Legislation will be introduced in Finance Bill 2011 to increase from £500 to £2,500 the maximum value of the benefits that individuals and companies may receive as a result of making a donation to a charity of more than £10,000 under Gift Aid. The new limit will be subject to the existing rule that the benefit must not exceed five per cent of the gift. HMRC will also publish revised guidance in April 2011 on Gift Aid benefits to clarify a number of issues and misunderstandings that have become apparent following discussions with stakeholders.

Replace the anti-avoidance legislation on substantial donors with a new, targeted purpose-based rule

Legislation will be introduced in Finance Bill 2011 to replace the existing substantial donors legislation. Following responses received during the consultation on draft clauses amendments have been made to make the legislation clearer and better targeted. The revised version of the legislation focuses on “financial advantages”; includes a carve-out for relevant housing providers and charitable payments made to a charity for onward transmission to a non-charity body; and provides for a shorter transitional period before the existing legislation is repealed (reduced from five years to two).

VAT: revalorisation of registration and deregistration thresholds  

From 1 April 2011, the VAT registration threshold will be increased from £70,000 to £73,000 and the deregistration threshold from £68,000 to £71,000.

VAT: refund scheme for academies

As CTG reported last year, Finance Bill 2011 will introduce a new VAT refund scheme with effect from 1 April 2011 to ensure that funding for the non-business VAT costs of academies is consistent with that for local authority maintained schools.

Approved Mileage Allowance Payments rates from 2011-12

Where employees use their own cars for business mileage they can claim reimbursement from their employers through the approved mileage allowance payments rates (AMAPs) which is not regarded as a taxable benefit. There is currently a higher rate of 40p per mile for the first 10,000 miles of business use and 25p per mile thereafter. Where individuals are paid less than those amounts by their employer, they can claim mileage allowance relief (MAR) for the residual amount. A statutory instrument, laid on 23 March 2011, will increase the higher rate to 45p per mile with effect from 6 April 2011. The rate will also apply to MAR.

Finance Bill 2012 will include provisions to:

Charge a reduced rate of IHT of 36% on estates where at least 10% of the estate has been left to charity

A reduced rate of inheritance tax (IHT) will apply where 10 per cent or more of a deceased’s net estate (after deducting IHT exemptions, reliefs and the nil rate band) is left to charity. In those cases the current 40 per cent rate will be reduced to 36 per cent. The new rate will apply where death occurs on or after 6 April 2012. The Government will be consulting on the detailed implementation of this measure and will issue a consultation document before the summer.

Abolish Self Assessment Donate (SA Donate)

 

The SA Donate scheme is to be withdrawn for repayments of tax due on tax returns for 2011-12 and subsequent years, and for any repayments made in respect of earlier tax years on or after 6 April 2012. Self-assessment taxpayers who are due a repayment of tax from HMRC may currently direct that the repayment should be made instead to a charity of the taxpayer’s choice. The Budget documents say that SA Donate has not been well used, is expensive to administer and could be vulnerable to fraud without extensive upgrading of the HMRC systems.

The following announcements in the Budget will also be of interest to members

Introduction of a Gift Aid Small Donations Scheme which provides charities with a Gift Aid style top-up on small donations collected without a Gift Aid declaration

From April 2013 charities (and community amateur sports clubs) that receive small donations of £10 or less will be able to apply for a gift aid-style repayment without the need to obtain gift aid declarations for those donations. The amount of small donations on which the new repayment can be claimed will be capped at £5,000 per year, per charity. In order to qualify for this new repayment, charities will need to have been recognised by HMRC for Gift Aid purposes for at least three years, have been operating Gift Aid successfully throughout that time and have a good tax compliance record. The Government will be consulting with charity representatives on the details of the new scheme over the summer 2011.

Gift aid: online filing

In 2012-13 HMRC will introduce a new online system for charities to register their details for gift aid and to make gift aid claims. As a first step towards this, HMRC will publish four new “intelligent” forms for charities to use. The forms contain automatic checks to improve the accuracy of information and reduce administrative burdens. HMRC has worked with the charity sector to develop the new forms and will work with the sector to develop the new online system. HMRC will also work with the charity sector to develop a supporting electronic Gift Aid database for Gift Aid declarations.

Gifts of Art

The Government is considering introducing a tax reduction for taxpayers who give a work of art or historical object of national importance to the State. A consultation on the proposal will take place over the summer.