The Chancellor has today published Budget 2016. All HM Treasury Budget related documents and all HMRC documents are also online, along with the Chancellor’s speech.

Overall this has been an interesting, tidying-up Budget with some important announcements for charities, the most significant of which is the assurance we’ve received from Treasury officials that the 80% mandatory business rate relief that is given to charities will be maintained, which is very welcome. Some charities may also benefit from the extension of the small business rate relief although discretionary rate relief for charities is likely to be squeezed again.

Some of the new anti-avoidance measures will require close scrutiny to ensure that they do not inadvertently affect charities, as happened with the close company loans to participators, from which CTG successfully lobbied for an exemption for charities which the Chancellor has confirmed will be in this year’s Finance Bill.

Many parts of the charity sector will benefit from some specific announcements, ranging from, for example, the extension of the Cathedral repairs fund and the extension of the eligibility for VAT refunds for museums and galleries to the specific grants to certain charities from the LIBOR fines and the Tampon Tax receipts. Charities will also be affected by a small increase in Insurance Premium Tax but a continued freeze on fuel duty.

Summary of announcements relevant to charities

Business rates review

Following the Business Rates Review, Treasury officials have confirmed to us that 80% mandatory business rates relief for charities will be protected, which is a vitally important development for the sector. However, the introduction of other discretionary reliefs may mean that the 20% discretionary reliefs for charities may come under further strain.

The Government has announced that it will:

• permanently double Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a property with a rateable value of £12,000 and below will receive 100% relief. Businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief. 600,000 small businesses, occupiers of a third of all properties, will pay no business rates at all – a saving worth up to £5,900 in 2017-18. An additional 50,000 will benefit from tapered relief
• increase the threshold for the standard business rates multiplier to a rateable value of £51,000, taking 250,000 smaller properties out of the higher rate. This will reduce business rates for many small businesses – including some high street shops

From April 2020, taxes for all businesses paying rates will be cut through a switch in the annual indexation of business rates from RPI to be consistent with the main measure of inflation, currently CPI, in line with the Government’s previous commitment to consider moving the indexation of indirect taxes from RPI once fiscal consolidation is complete. This will result in lower costs for charities that have to pay business rates.

The Government will also modernise the administration of business rates to revalue properties more frequently and make it easier for businesses to pay the taxes that are due:

• the Government will aim to introduce more frequent business rate revaluations (at least every 3 years) and will publish a discussion paper in March 2016 outlining options on how to achieve this to support both businesses and the stability of local authority funding. The current Revaluation process every 5-7 years takes up an enormous amount of time on both sides, so if it is to be done more frequently that must be accompanied by a streamlining of the way that data is collected. At the moment charities can receive literally hundreds of paper forms, one for each property being revalued. The downside could be more frequent increases in rates because the revaluations are invariably upwards.
• the Government will transform business rates billing and collection. By 2022, local authority business rate systems will be linked to HMRC digital tax accounts so that businesses can manage their rates bills in one place alongside other taxes. As a first step, the Government will work with local authorities across England to standardise business rate bills and ensure ratepayers have the option to receive and pay bills online by April 2017. On the face of it this is welcome, but the downside could be a standardisation of the way that charity relief and discretionary relief is awarded: some authorities are more generous than others depending on their local priorities, so we would want to see their ability to apply their own discretion retained in any new centralised billing system
• once local authority and HMRC systems are linked, the Government will consider the feasibility of replacing SBRR with a business rates allowance for small businesses – this would be applied to a business’s total property portfolio across local authority areas allowing businesses that grow and acquire more property to benefit from relief

These measures build on the devolution revolution confirmed at Autumn Statement 2015, which will allow local Government to keep the rates they collect from business, give councils the power to cut business rates to boost growth, and give elected city-wide mayors the power to levy a business rates premium for local infrastructure projects – with the support of local business. Local Government will be compensated for the loss of income as a result of the business rates measures above, and the impact considered as part of the Government’s consultation on the implementation of 100% business rate retention in summer 2016.

The Government will pilot the approach to 100% business rates retention in Greater Manchester and Liverpool City Region and will increase the share of business rates retained in London. This will help to develop the mechanisms that will be needed to manage risk and reward under 100% rates retention and will help authorities to build financial capacity to reform core services and invest in long term economic growth from 2017 – three years ahead of schedule. The offer is open to any area that has ratified its devolution deal.

DCMS extension of museum VAT refund eligibility

The Government has announced that it will broaden the eligibility criteria for the VAT refund scheme for museums and galleries. DCMS has published guidance on the new criteria, which will enable support to a wider range of free museums from across the UK.

To be eligible to apply for admission to the scheme museums or galleries must:

• Be open to the general public for at least 30 hours per week, without exception
• Offer free entry, without prior appointment
• Hold collections in a purpose-built building
• Display details of free entry and opening hours on the museum website

Museums and galleries will also be required to complete a strategic business case as part of the application process, including:

• Proof of Arts Council England Accredited status (or equivalent)
• Past and/or projected visitor figures
• Information on existing and planned education programmes and community engagement work

Upon admission to the scheme museums or galleries will be required to provide:

• Evidence confirming an obligation to providing or continuing to provide free entry
• Visitor figures on a bi-annual basis

HMRC digital

HMRC has confirmed that the new system allowing charities to register jointly with HMRC and the Charity Commission has been delayed to April 2017. The Autumn Statement 2015 measure ‘making tax digital’ also remains on track.

VAT: Revalorisation of VAT registration and deregistration thresholds

From the 1 April 2016 the VAT registration threshold will increase from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000

Personal allowance and higher rate threshold

The Government has committed the personal allowance to £12,500, and the higher rate threshold to £50,000 by the end of this parliament. The personal allowance will increase to £11,000 in 2016-17 and £11,500 in 2017-18. This will have implications for the number of donors that have paid sufficient tax to be eligible to make Gift Aid claims

The Government has announced that it will increase the higher rate threshold to £45,000 in 2017-18. This will have implications for higher rate relief on Gift Aid.

Corporation tax: museums and galleries tax relief

The Government will introduce a new tax relief for museums and galleries from 1 April 2017 following a consultation over summer 2016. The relief will be available for temporary and touring exhibition costs. CTG has been involved in initial discussions with officials about how this new tax relief will work in practice.

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.

Gift Aid digital

As announced at March 2015 Budget, the Government will legislate to give intermediaries a greater role in administering Gift Aid.

Tampon Tax Fund for women’s charities

The Government is committing £12 million of funding to support a range of good causes benefitting women. Within this funding the Government has also committed to the following grant-making partnerships to disburse tampon tax funding to a range of grassroots women’s organisations, in recognition of the high number of applications received from such organisations across the country.

It is notable that there is no reference to the previous announcement that the Government is seeking a zero rate on sanitary products. If that does continue as part of wider European VAT negotiations there may be both opportunities and threats for charities.

Close company loans to participators: partial exemption for charities

As announced at Spending Review and Autumn Statement 2015, following consultation the Government will legislate so that a tax charge is not applied to loans or advances made by close companies to charity trustees for charitable purposes.

This will apply to qualifying loans or advances that are made on or after 25 November 2015. This important exemption follows a campaign by CTG to highlight how this anti-avoidance legislation would have inadvertently effected charities and could save the sector millions of pounds a year.

Insurance Premium Tax

The standard rate of Insurance Premium Tax (IPT) will be increased from 9.5% to 10% with effect from 1st October 2016. This will help to fund flood defence and expenditure. An increase in IPT will mean an increased cost for charities, although it will be funding an important cause. CTG calls on the Government to also support flood rescue by accepting that flood rescue providers such as Surf Life Saving GB be included in the s33 VAT refund scheme as a provider of search and rescue services.

Reform of business energy taxes

Following consultation on simplification of the business energy efficiency tax landscape, the Government will:

• abolish the Carbon Reduction Commitment (CRC) energy efficiency scheme with effect from the end of the 2018-19 compliance year. Businesses will be required to surrender allowances for the final time in October 2019.
• increase the main rates of Climate Change Levy (CCL) from 1 April 2019, to cover the cost of CRC abolition in a fiscally-neutral reform and incentivise energy efficiency in CCL-paying businesses

Abolishing CRC will result in administrative savings for charities which is broadly welcome although the alternative systems proposed need further review. Charities benefit from an exemption from CCL on their non-business activity but will need to quantify the costs of any exposure on their business activities.

Apprenticeship Levy

As announced at Autumn Statement and Spending Review 2015, the Government will introduce the apprenticeship levy in April 2017. We await further details from Government about the exact scope and definition of “apprentices”, the requirements to become a registered training provider, how charities can use their levy contribution and other issues relating to VAT costs and grant-making charities.

Cathedral Repairs Fund

The Government will provide £20 million across 2016‑17 and 2017-18 to extend the First World War Centenary cathedral repairs fund. A review into sustaining England’s churches and cathedrals will be set up to assess maintenance and repair pressures and examine how the sector can become more financially sustainable.

Employment Allowance

The Government has confirmed that the Employment Allowance will increase to £3,000 from April 2016

The National Living Wage and National Minimum Wage

The new mandatory National Living Wage (NLW) will come into effect from 1 April 2016, set at £7.20 an hour for workers aged 25 and above. This will represent a £900 cash increase in earnings for a full-time worker on the current National Minimum Wage (NMW) – the largest annual increase in a minimum wage rate across any G7 country since 2009, in cash and real terms.107 Around 65% of those who will benefit directly from the NLW are women, and the OBR estimate that by 2020 1.9 million women will be earning the NLW.

Reform of the wear and tear allowance

As announced at Summer Budget 2015, from April 2016 the Government will replace the Wear and Tear Allowance with a new relief that allows residential landlords to deduct the actual costs of replacing furnishings.

LIBOR – use of banking fines

The Government has committed £45 million of banking fines over the next 4 years to support military charities and other good causes.

Aggregates Levy rate 2016-17

The Aggregates Levy rate will remain frozen at £2 per tonne in 2016-17.

Landfill Tax rates

The standard and lower rates of Landfill Tax will increase in line with RPI, rounded to the nearest 5 pence, from 1 April 2017 and again from 1 April 2018.

Charity lump sum death benefits

The Government will consolidate pension flexibilities to ensure that these are working as intended, including by removing unnecessary legislation relating to charity lump sum death benefits.

VAT: Isle of Man charities

The Government has confirmed that it will legislate to ensure charities subject to the jurisdiction of the High Court of the Isle of Man are capable of qualifying for UK VAT charity reliefs. We understand from Treasury officials that this is purely an administrative change.

New State Aid powers for HMRC

HMRC’s powers to request information are generally restricted for the purpose of checking a tax position, for example checking the amount of the claim is correct or checking a tax position in a tax return. HMRC has announced new powers to collect information on certain state aids and share this information with the European Commission through a legal gateway.

The reliefs affected include: Enterprise Investment Scheme (Part 5 Income Tax Act 2007); Venture Capital Trusts (Part 6 Income Tax Act 2007) ; Orchestras Relief (Part 15D CTA 2009 – to be enacted; Theatre Relief (Part 15C CTA 2009); R&D credit for SMEs; Climate Change Agreements (reduced rate of Climate Change Levy)

Legislation will be introduced in Finance Bill 2016 to provide HMRC with additional powers to:

• require information to be provided by the beneficiary as a condition of entitlement for tax relief
• require information to be provided for the purpose of checking that state aid requirements have been fulfilled
• disclose information through a legal gateway for the purpose of publication

Fuel duty

The Government has announced that it will maintain the freeze on the main rate of fuel duty at 57.95 pence per litre for 2016-17.

Venture capital schemes: energy generation

As announced at Spending Review and Autumn Statement 2015, the Government will exclude all remaining energy generation activities from the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and Venture Capital Trusts with effect from 6 April 2016, as well as from Social Investment Tax Relief when enlarged.

Salary sacrifice

The Government has announced that it is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. This follows concerns about the growth of salary sacrifice schemes and the associated administrative burden for HMRC.

Trivial benefits-in-kind

As previously announced, the Government will introduce a statutory exemption from income tax for qualifying trivial benefits-in-kind costing £50 or less. The exemption will remove the charge to income tax or Class 1A National Insurance contributions (NICs) with effect from 6 April 2016. A corresponding disregard for Class 1 NICs will take effect later in the year.