The immediate pressures of the COVID-19 pandemic have eased and the country has been adapting to a post-Brexit environment. Yet policymaking has been dominated by new factors; with efforts to ease the cost-of-living crisis, fuelled by high inflation and soaring energy costs. Political turmoil – with three Prime Ministers and four Chancellors in a year – has not helped either.  As a result, progress on key tax issues relevant for charities has been limited.

In response to this, the Charity Tax Group (CTG) has proposed practical targeted support for charities to help them survive in what is almost inevitably going to be an immensely challenging environment. We have collaborated with sector partners and will continue to strive to provide a strong voice for the sector on tax issues. An overview of our work in 2022 can be watched as part of the recent AGM presentation and is recapped below.

Working with HMRC on Gift Aid issues: CTG continues to encourage charities to process Gift Aid claims as quickly as possible to aid their cash flow whilst ensuring that claims are properly checked to avoid Gift Aid being claimed incorrectly.  The pressures on HMRC as a result of the pandemic have resulted in many delays in processing tax claims.  As a result, we have worked closely with HMRC to ensure that compliance checks do not unnecessarily delay Gift Aid claims.

When the Government planned to reduce income tax, a transitional period was announced to mitigate the impact on reduced Gift Aid claims. This resulted directly from positive engagement from the sector with HMRC highlighting the value of the relief.

Gift Aid and loan waivers: HMRC announced in May 2021 that Gift Aid can be claimed on Waived Refunds and Loan Repayments. Previously a waiver of debt was not eligible for Gift Aid, without funds being returned to a donor first.  This made permanent a narrower COVID concession that had been advocated by CTG.

Following consultation with CTG, HMRC guidance on loan waivers and loan repayments has been updated to clarify the requirements. HMRC expect there to be a legally enforceable document in place when a loan is waived. CTG is in the process of developing model documents which will be published in due course. Read more here.

Future of Gift Aid project: The Gift Aid system is now over twenty years old and was designed at a time when modern means of payment were not even imaginable. The Future of Gift Aid steering group, co-ordinated by CTG, has written to the Treasury to urge the Government to invest in the project.  The project advocates a modern Gift Aid system which would help reduce the £180m of Gift Aid claimed in error and help to unlock more than £560m of Gift Aid that goes unclaimed each year. This proposal aligns with the Governments plans for a digital tax system.

Fundamental to this is that Gift Aid legislation will need to be adapted to meet the original intentions of the scheme.  There seems to be an open door for a well-reasoned case along these lines.  From the outset this has been a collaborative project involving a wide range of stakeholders including HMRC, the advisory profession and giving platforms.  The Treasury has confirmed that the Chancellor will take this into consideration in advance of the next Budget. You can read more about the project here.

VAT and advertising: HMRC has previously ruled that most digital advertising should be subject to VAT. HMRC had raised assessments to recover VAT from some advertising agencies. These costs were generally being passed on to charities and amount to millions of pounds of irrecoverable VAT. Persistent representations by CTG led HMRC to eventually confirm that VAT was no longer considered due on internet search browsing advertisements, except where they appear on personal social media accounts. CTG has been providing technical support to a charity planning to challenge the VAT treatment of social media advertising and it is hoped that this litigation will progress in 2023.

Business rates and online sales tax: The Government’s fundamental review of business rates reported in October 2021 and concluded that no existing reliefs would be removed for the time being. As charity rate reliefs are worth almost £2bn a year this was very good to hear.  But this may not be end of the story and the sector will need to continue to demonstrate the importance of this relief to the work of charities. An outcome of the review was the publication of a consultation on an online sales tax. The review document gave a clear steer towards charities being out of scope of the tax, but the position of trading subsidiaries was unclear. CTG’s response with other sector bodies, supported an exemption for charities.  It also questioned whether an online sales tax was the best way to support and stimulate trading on the high street. The Government has now confirmed that it does not intend to take forward an online sales tax.

Naming of buildings: In 2016/17, HMRC undertook a review of the donor benefit rules, following which new guidance was introduced in August 2019.  Unfortunately, the section of this new guidance relating to the naming of buildings was ambiguous and some advisors had warned that it could be interpreted in such a way that the naming of a building after a donor who had given a substantial amount towards its construction would be treated as a donor benefit. CTG took soundings in the sector to see whether this was a theoretical problem or whether HMRC was actively implementing a change a policy.

As it was clear that some advisers were already warning their clients that the new guidance was suggesting that a donor benefit could arise, CTG raised the matter directly with HMRC, explaining that the new guidance was ambiguous and appeared to be contrary to the long-standing arrangement whereby the naming of a building was not treated as a benefit. Following these discussions with CTG, HMRC has confirmed that there had been no change in policy and has issued revised guidance.  CTG is very grateful that, once the matter had been drawn to its attention, HMRC acted quickly and positively to clarify the situation. Read more here.

Employment taxes: Employment taxes have always been important for charities.  With changing work patterns there are many new issues to face. Following the pandemic, more employees are working remotely. This can be particularly complicated when an employee is working abroad.

Recognising this, CTG has arranged a number of recorded expert insight webinars to review the implications of hybrid and remote working. We have also identified the opportunities for tax savings through salary sacrifice schemes, particularly for the use of electric vehicles. Electric vehicles give rise to very low taxable benefits in kind.

VAT Expert Group: This year, CTG revamped its VAT Expert Group to bring together leading experts on charity VAT issues from professional firms. Issues they have reviewed already include the HMRC Business Brief on Business and Non-Business activities.

Membership offer for London charities: The City Bridge Trust has funding to enable CTG to engage, support and represent charitable organisations in London on fiscal and tax matters. Organisations could claim a free membership contribution on their behalf. This has widened the number of charities engaged with CTG, increasing the profile of the organisation and supporting these charities to navigate the tax maze. Find out more here.

Looking ahead to 2023

It is difficult to predict the particular fiscal challenges that charities will face in the coming twelve months. We live in an age of uncertainty but what seems sure is that the upcoming challenges will be significant ones. CTG, as the voice of the sector on tax, is determined to ensure that the interests of charities will not be forgotten.

CTG will be celebrating its 40th anniversary and we hope that you will continue to support our work on behalf of the sector. As we consider our work in 2023 we would love to hear your feedback (both good and bad). Let us know if there is anything that you have found useful or that could be improved. In particular, let us know your thoughts about the content and functionality of our website. Please send any comments to info@charitytaxgroup.org.uk.

In this period of immense change, we also encourage charities to be forward in dealing with tax issues.  Whilst the public perception remains that charities do not pay tax, this could not be further from the truth. If you face change in how your charity operates, think tax. If not, you may come to regret it.

We encourage charities to make the most of the resources that CTG and charity professional advisors make available to their clients. We provide easy to understand tax newsletters and webinars, and comprehensive guidance on our website. Commissioning a tax health check is one particular way that a charity can ensure that it is handling tax risk and making the most of tax reliefs. Taking professional advice may often seem expensive but taken at the right time it is a very wise investment.