The Chancellor has today announced his Summer Budget. All HMRC tax related documents and other announcements for Summer Budget 2015 can be found here.

In response to today’s Summer Budget, CTG Chairman, John Hemming, commented:

“In terms of charity tax, the devil is in the detail in this Budget and we may not fully understand the implications for the sector straight away. An increase to the Employment Allowance for charities is welcome, as is the re-stated commitment that VAT will not increase during this Parliament. However, it is important that this commitment is extended to protect the invaluable VAT reliefs and exemptions that charities currently benefit from. CTG questions why the Government feels that charities and universities are less deserving of Research and Development Tax Credits (RDEC) than commercial researchers and this will result in millions of pounds of additional costs for the sector as will the general increase to Insurance Premium Tax.

“We will be seeking to quantify the value of these changes to the sector in the weeks to come. As ever, we will be examining anti-avoidance legislation (including measures relating to business rates) to ensure that there are no unintended consequences for charities, and we will also be exploring whether there are any positive or negative implications for the sector of the changes to Dividend Tax Credits.

“While there were no headline announcements relating to Gift Aid, we understand from Treasury officials that Government is committed to the reform of the donor benefit rules and Declaration that began during the last Parliament. Further increases to the Personal Tax Allowance will reduce the number of people paying sufficient tax to make an eligible Gift Aid claim, which makes improving understanding of the system more important than ever.”

Summary of policy announcements

 Research and development (R&D) tax credits: universities and charities

The Government has announced that it will change the R&D tax credits legislation so that universities and charities are unable to claim the R&D Expenditure Credit (RDEC). This will apply to expenditure from 1 August 2015. Government sees this is as an anomaly which ran counter to the original intention of the policy. CTG is aware that a number of member charities have already claimed (and received) the tax credits and that in some cases this amounts to a significant sum. Please send us your feedback on the likely cost of this policy. We are keen to question the Government’s perception that commercial researchers are more deserving of this tax relief than charities and universities.

Insurance Premium Tax

The Government has announced that from 1 November 2015, the standard rate of Insurance Premium Tax will be increased from 6% to 9.5%. Page 97-98 of the Charity Tax Map explains the relevance of IPT to charities. A survey of 30 charities commissioned in 2011 indicated that they paid £590,000 on this tax so any increase will be felt by charities. We would welcome your feedback on the likely cost of the increase for your charity or charity clients.

Employment Allowance/National Living Wage

The Government has announced an increase in the Employment Allowance by £1,000 to £3,000 from April 2016 to support small businesses and charities to create jobs. To ensure that the NICs Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance. The government recognises that a newly announced National Living Wage may increase costs for some businesses. It is intended that the increased Employment Allowance will help all businesses and charities, particularly smaller ones, with additional wage costs.

Tax lock

The Government has restated its commitment to introducing into legislation a tax lock to rule out increases in the main rates of income tax, VAT or National Insurance over the course of this Parliament. This is welcome so long as invaluable VAT reliefs and exemptions are protected. An HMRC policy paper on this issue indicates that it is expected to have no impact on civil society organisations and confirms that the reduced rate of VAT will not increase either. Zero rates are not affected by this legislation.

Business rates: administration and avoidance

The Government has today published progress updates on action it is taking to improve the administration of business rates, including the appeals system, and on tackling business rates avoidance. CTG has not yet had sight of this progress update but will be reviewing it closely for possible implications for charities once it is received.

Anti-avoidance legislation

Following the announcement at Budget 2015, the government will also consult on the detail of a new General Anti-Abuse Rule (GAAR) penalty. The GAAR penalty will be proportional to the amount of tax recovered by the GAAR.

The Government will invest an additional £36 million over 5 years from 2016 to tackle serious non-compliance by trusts, pension schemes and non-domiciled individuals. This is not expected to target charity trusts but CTG will continue to monitor this.

The Government will introduce legislation to improve transparency of tax strategies and give HMRC new powers to tackle those businesses who persistently engage in aggressive tax planning.

Dividend Tax Credit

From April 2016 the Government will remove the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. CTG will be discussing the possible positive and negative implications for charities with officials following the Budget.

Personal Allowance

The Government has pledged to raise the personal allowance to £12,500 by the end of this parliament. In 2016-17, the personal allowance will increase by £400 to £11,000.

The Government has also pledged to raise the level at which the higher rate of income tax is applied, the higher rate income threshold, to £50,000 by the end of this parliament. The Government has confirmed that it will be increasing the higher rate threshold from £42,385 to £43,000 for 2016-17.

Office of Tax Simplification report

The Government will commission the OTS to review the closer alignment of income tax and National Insurance contributions.

Inheritance tax

The Government has announced a new transferable nil-rate band, introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21. This is in addition to the inheritance tax nil-rate band, which is set at £325,000 for the estates of individuals. This creates an effective £500,000 inheritance tax threshold for estates in 2020-21. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner and means the effective inheritance tax threshold will rise to £1 million in 2020-21. Charities will need to consider what implications this might have for legacy giving.

Banking fines directed to charities

The Government has committed nearly £70 million of banking fines over the next 5 years to support military charities and other good causes.

Corporation tax: orchestra tax relief

As announced at March Budget 2015, the Government will provide tax relief to orchestras at a rate of 25% on qualifying expenditure from 1 April 2016.

VAT refunds for shared services

The Government has restated its plans to legislate to refund to eligible public bodies the VAT incurred on specified shared services. While this is unlikely to be directly relevant to charities CTG is interested to learn about the scope of this legislation.

Stamp Duty Land Tax (SDLT): application to certain authorised property funds

As previously announced, the Government intends to introduce a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and intends to make changes to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units, subject to the resolution of potential avoidance issues.