The Chancellor today delivered Budget 2014. The Treasury’s Budget website can be accessed here while all the Budget documents are available here.

CTG welcomes a number of positive measures announced in today’s Budget that will help charities, in particular the work being done to improve and simplify the Gift Aid scheme.

CTG has been working closely with the UK Search and Rescue charities to improve their VAT position and welcomes the announcement of that the Government will introduce a 5-year grant of £65,000 per year to help air ambulances with the cost of VAT on fuel and also, following consultation, the proposed 5-year grant of £1 million per year for inland safety boat charities across the UK. We also look forward to more detail about the use of the LIBOR fines to support injured personnel involved with search and rescue and lifeboat services.

The Government has also confirmed that the Social Investment Tax Relief will be set at 30% and we will work with sector colleagues to assess the implications for take-up and potential impact on Gift Aid claims. CTG is pleased to note that when introducing anti-avoidance legislation relating to transfer of corporate profits, HMRC has recognised that charities who have a subsidiary that Gift Aid’s profits back to it, is not considered to be tax avoidance since the subsidiary and the charity are both taking advantage of tax reliefs which are intended to be used this way.

CTG is seeking clarification on a number of issues from officials at HMRC, particularly on the timetable for various consultations and the estimated cost to the sector of different measures. Following this and a more detailed analysis of the Budget documents, further briefing material will be circulated. A detailed summary of all Budget developments will also be provided at a post-Budget Briefing Session on 25 March 2014 and at the CTG Tax Conference on 28 April 2014.

Interim update on key tax announcements affecting charities

Gift Aid and charities

Gift Aid digital – As announced at Autumn Statement 2013, the government will legislate to allow non-charity intermediaries a greater role in operating Gift Aid with further detail to be set out in regulations (Finance Bill 2015). In a letter to key stakeholders including the Charity Tax Group, the Economic Secretary to the Treasury Nicky Morgan MP had said that this followed very productive discussions that she and officials have had with many charities and representative bodies [including CTG] over the past months. In the letter, the EST also makes a commitment to future proofing any changes so that they can adapt to continual changes to payments technology.

Social investment tax relief – The government will set the rate of income tax relief for the social investment tax relief at 30% from 6 April 2014. Eligible organisations will be able to receive up to €344,827 of tax-advantaged investment over 3 years under the scheme. HMRC will publish additional guidance alongside Finance Bill 2014. CTG welcomes the Government’s confirmation that it will introduce a new social investment tax relief to encourage individuals to invest in social organisations. In its response to the consultation on social investment tax relief earlier this year CTG welcomed the overall intention of the policy but expressed concerns that the introduction of the tax relief for social investment may lead some donors to convert their donation into an investment, to either the same or a different charity. This is a concern for charities, but to what extent this is likely to happen, is as yet unknown as there is limited research available at present on donor motivations. Now the relief has been set at 30%, it will be important to carefully monitor any impact on charitable donations.

On a simple analysis it looks as though SITR relief will be more generous for Additional Rate tax payers than Higher Rate taxpayers. The difference is marginal though:

• 45% taxpayer – £10,000 cash gift gives rise to (Additional Rate) Gift Aid relief of £3,125 and SITR relief (assuming a 30% rate) of £3,000.
• 40% taxpayer – £10,000 cash gift gives rise to (Higher Rate) Gift Aid relief of £2,500 and SITR relief (assuming a 30% rate) of £3,000.

However, this simple analysis does not take account of a philanthropic approach which would say that the charity also benefits from Gift Aid by a further £2,500, and has permanent use of the funds gifted. Clearly some donors will take this into account or, if they think that they will get the capital back, may socially invest with a view to gift aiding the same monies later on. It will be the responsibility of charities to promote the benefit of Gift Aid relative to SITR and this will need to be monitored. To this end, we welcome confirmation by the EST that SITR will be reviewed in 18-24 months to see if the relief is working in the way intended.

Small charities – The government will encourage more donors to use Gift Aid on eligible donations and encourage smaller charities to register for the reliefs they are entitled to. This will include targeted outreach work, a simpler joint HMRC/Charity Commission application process and improving understanding of donor behaviour. CTG is represented on a HMRC Gift Aid working group which will meet over the next year to look at ways to promote Gift Aid and achieve simplifications to the Gift Aid Declaration.

Cultural Gifts Scheme – The combined annual limit for the Cultural Gifts Scheme and Inheritance Tax Acceptance in Lieu scheme will be increased from £30 million to £40 million a year from 2014-15. As announced at Autumn Statement 2013, the government will legislate to ensure the Cultural Gifts Scheme (CGS) works as intended in relation to Estate Duty. The amendment will ensure that donors of objects, on which there is potentially a charge to Estate Duty, are not financially better off by donating the object under the CGS, than selling the object on the open market (Finance Bill 2014)

Charity donor benefits – The government will review benefits allowed to donors with a view to simplifying existing rules. CTG has been calling for a review for some time and this has resulted in the formation of a HMRC working group, which will meet next this Friday (21 March 2014). A summary of the CTG working group on Gift Aid donor benefits can be read here.

Grant for air ambulance and inland safety boat charities – Following HM Treasury’s review of the VAT air ambulance charities incur on fuel, the government will introduce a 5-year grant of £65,000 per year for air ambulance charities across the UK. Following a consultation, the government will also introduce a further 5-year grant of £1 million per year for inland safety boat charities across the UK. CTG welcomes this announcement and looks forward to receiving further details.

Community Amateur Sports Clubs – As announced at Autumn Statement 2013 the government will legislate to allow tax relief on gifts of cash from companies to Community Amateur Sports Clubs (Finance Bill 2014).

Theatre tax relief – The government will introduce a new theatre tax relief at 25% for qualifying touring productions and 20% for other qualifying productions, with effect from 1 September 2014. Many theatres are charities and this is a welcome development (Finance Bill 2014)

Avoidance schemes

Avoidance schemes using charities – Following announcement at Autumn Statement 2013, the government is consulting further on measures to help deter the use of charities established for the purpose of tax avoidance, with any legislation to follow at an appropriate time. CTG fully supports the Government’s efforts to reduce the ability of fraudsters to use charities as aggressive tax avoidance vehicles.  However, we were concerned that the government’s Draft Legislation could have unintended negative implications for the sector and are pleased that HMRC has directly recognised the need to address CTG’s concerns in the Discussion Paper it recently published.

High risk promoters – The government will provide HMRC with new powers to tackle non-cooperative promoters of tax avoidance schemes. These powers will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance (Finance Bill 2014)

Marketed tax avoidance schemes – Following a consultation that closed in February 2014, the government will legislate to provide that HMRC may issue a notice to the user of a tax avoidance scheme that they should settle their dispute with HMRC when the claimed tax effect has been defeated in other litigation. If the taxpayer does not settle they risk a penalty and must make upfront payment of the tax in dispute. Budget 2014 announces that the requirement to pay upfront will also apply to the disputed tax associated with any scheme that falls within the disclosure of tax avoidance scheme rules (DOTAS) and with schemes that HMRC counteracts under the general anti-abuse rule (GAAR) (Finance Bill 2014)

CTG is pleased to note that when introducing anti-avoidance legislation relating to transfer of corporate profits, HMRC has recognised that charities who have a subsidiary that Gift Aid profits is not considered to be tax avoidance since the subsidiary and the charity are both taking advantage of tax reliefs which are intended to be used this way.

Disclosure of Tax Avoidance Schemes regime (DOTAS) improvements – The government will consult on improving the current DOTAS regime, including through refining the existing avoidance scheme hallmarks, introducing new hallmarks, and strengthening the penalties for non-disclosure (Finance Bill 2015)

VAT Avoidance Disclosure Regime (VADR) improvements – The government will consult on proposed changes to the VADR in order to bring it more in line with the DOTAS regime, including shifting the primary responsibility for disclosure from the users to the promoters of VAT avoidance schemes (Future Finance Bill)

Property

Stamp duty land tax (SDLT): charities relief – As announced at Autumn Statement 2013, the government will legislate to make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. The changes will take effect from the date on which Finance Bill 2014 receives Royal Assent. (Finance Bill 2014)

Repair grants for cathedrals – The government will provide £20 million for a grant scheme for repairs to cathedrals. This is a welcome development following the withdrawal of the VAT zero rate for approved alterations to listed buildings in the Budget 2012.

VAT

VAT: revalorisation of the VAT registration and deregistration thresholds – From 1 April 2014 the VAT registration threshold will be increased from £79,000 to £81,000 and the deregistration threshold from £77,000 to £79,000.

VAT: refunds for the Health Research Authority and Health Education England –

As announced at Budget 2013, once they have been established by the passage of the Care Bill 2014, the government will legislate to include the following bodies within the Section 41 VAT Refund Scheme:

• the Health Research Authority
• Health Education England (Finance Bill 2014)

VAT: zero rate for adapted motor vehicles for wheelchair users – The government will consult on reform of the VAT zero rate relief on the supply of motor vehicles adapted for the use of wheelchair users, to seek to better target the relief and reduce fraud, and to ensure that users of lower limb prosthetics can benefit from the relief. This may follow from the judgment in Concept Multi-Car Ltd (TC03250) where the appeal considered whether the supply of a number of adapted motor vehicles to disabled customers qualified for zero-rating on the basis that the adaptations made to each of the vehicles satisfied the criteria in Item 2A and Note 5L of Group 12 of Schedule 8 to the VAT Act 1994 (i.e. each was substantially and permanently adapted to enable a handicapped person who usually used a wheelchair to enter, and drive or otherwise be carried, in the motor vehicle). The Appellant argued that various features of the vehicles, such as front seats that swivelled, an ambulance ramp kit and grab handles, amounted to adaptations which satisfied the legislative requirements for zero-rating. HMRC disagreed, arguing that features such as the swivel seat did not meet the relevant criteria because they were an option put in by the manufacturer which was available to able-bodied persons as well, and that the other features such as the ambulance ramp kit and grab handles were not put in with the specific needs of the particular disabled person in mind. HMRC further contended that the adaptations were not permanent or substantial for the purposes of the legislation and that, even if the adaptations enabled a disabled person to enter the vehicle, they were not adaptations which enabled the disabled person ‘to drive, or otherwise be carried’ in the vehicle. The Tribunal held that each of the eight vehicles was adapted in a way which meant that it was a ‘qualifying motor vehicle” for the purposes of Note 5L. The supplies of the vehicles to disabled customers meeting the legislative criteria were therefore correctly zero-rated.