CTG Newsletter – 28 January 2020

Support the Charity Tax Group in 2020

The Charity Tax Group is funded by voluntary donations from charities and subscriptions from professional members. Throughout its history, CTG’s work on behalf of the whole sector have effectively been subsidised by a small group of charities that make a donation each year. To ensure the long-term sustainability of CTG and to grow its work, we need as many charities as possible to make a financial contribution.

If your charity has found CTG newsletters and events useful and want to demonstrate your support our lobbying work on behalf of the sector, please consider a donation for 2020.

On average smaller charities donate £200-£400, medium size charities donate £400-£800 and larger charities donate over £800 a year. Any contribution, however large or small, makes a big difference towards our work. If you are not sure whether your charity currently makes a regular donation, please let us know and we will be happy to tell you. A donation form can be downloaded here.

Financial support is of course very helpful, but we also rely on members for feedback to consultation and to help shape our policy work and representations to Government. If you have any questions about CTG’s work or would like to get more involved, please do not hesitate to contact us at info@charitytaxgroup.org.uk.

Influencing policy on charity taxation

Fifth Money Laundering Directive consultation: Charitable trusts not required to register with Trust Registration Service

Members will recall that last year the Government held a consultation on the transposition of the Fifth Money Laundering Directive (5MLD) into national law.

5MLD expands the scope of the Trust Registration Service (TRS) register by requiring trustees or agents of all UK and some non-EU resident express trusts to register those trusts with the TRS, whether or not the trust has incurred a UK tax consequence. The original consultation indicated that charitable trusts were likely to fall within the definition of an express trust and therefore would have to register. As outlined in this commentary, the proposed changes to TRS could have been very onerous for charities.

Announcing a detailed technical consultation on extending the Trust Registration Service,  the Government has now proposed that “charitable trusts are not in scope to register because the risk of these kinds of trusts being used for money laundering or terrorist financing activity is low”.

This is a great outcome for charities and vindicates the responses made by CTG and other sector bodies to the original consultation (including at a stakeholder meeting with HM Treasury) that charities were low risk and should be excluded from registering with the Trust Registration Service. This is a great example of common sense prevailing particularly as the rules would otherwise have applied regardless of whether or not the trust has incurred a UK tax consequence. We are aware that very small charitable trusts, including those that are excepted from registration with the charity regulators, could have been caught, which would have been unduly onerous, given their limited resources.

Budget representations

A reminder that the Chancellor has confirmed that the next UK Budget will be held on Wednesday 11 March 2020. The Budget 2020 representations portal is now open and HM Treasury is accepting representations until 7 February 2020. Please send any comments or suggestions to info@charitytaxgroup.org.uk before the deadline.

VAT and social media advertising

Members will recall that CTG received a letter from HMRC officials, in October 2019, outlining their view on the VAT treatment of social media advertising. CTG disagrees with this view and is considering possible next steps, following discussions with charities and agencies. If your charity would be interested in supporting a possible challenge to HMRC’s position, please contact info@charitytaxgroup.org.uk to receive a confidential briefing. Things are developing quickly, so please get in touch ASAP if this is a major issue for your charity.

Separately, DCMS has published a call for evidence (closing on 23 March 2020) on online advertising, including questions relating to the nature of data collection and the appropriateness and accuracy of targeting.

IR35/Off-payroll working consultation

HMRC has published draft secondary legislation on the implementation of IR35 reporting requirements from April 2020, for technical comment. The consultation closes on 19 February 2020.

HMRC has also published a technical note about the consultation and draft regulations, as well as the outcome of the previous consultation and a tax information and impact note, draft primary legislation and a draft explanatory memorandum.

The release of the draft legislation has occurred before the completion of a Government review of the implementation of IR35, which is due to conclude by mid-February following a series of roundtables with stakeholders – CTG has attended one of the meetings. We understand that to be a separate exercise so feedback provided to HMRC in the review may only be incorporated, if at all, later in the process.

We understand that a number of charities are now being contacted by HMRC (most likely through their Customer Compliance Managers) inviting them to take part in an educational call regarding the off-payroll changes. Charities that expect to be caught by the off-payroll working rules should look out for a Off Payroll Working Letter like this and an associated “readiness” for off-payroll working questionnaire. CTG has collated guidance on off-payroll working here.

Round-up of topical developments

• Marlow Rowing Club VAT decision reversed: in 2018, CTG’s Technical Adviser, Graham Elliott, commented on the unfortunate First tier Tribunal decision, relating to Marlow Rowing Club’s conduct in issuing a VAT Zero Rate Certificate for construction work, which later case decisions showed should not have been zero rated.  HMRC had decided to use the carelessness penalty provisions to collect the underpaid tax (as the penalty is 100% of the tax) on the basis that the supplier had accepted the certificate in good faith and should be allowed to rely upon that. Happily, the Upper Tribunal has reversed the adverse decision (which was that the charity had been careless and should pay the penalty), and that (subject to any HMRC appeal) no penalty is deemed payable by the charity. You can read Graham’s commentary on this latest case here including what it really means to be careless in issuing zero rate certificates.
• Business rates review in England planned: In a press release confirming details of new business rates discounts for pubs it was confirmed that: “The Government is committed to launching a fundamental review of business rates. Further details will be announced in due course”. Charity rates relief is worth over £2bn in England alone so it will be very important that charities monitor this review and reiterate the vital importance of reliefs to the sector. Read more here.
• Retail Discount extended: In a Written Ministerial Statement on 27 January 2020 the Government announced that it would extend the value of the Retail Discount from one third of the bill to 50% in 2020/21. This relief will apply to occupied retail properties (including charity shops) with a rateable value of less than £51,000 in the year 2020/21. A charity potentially could claim a discount of up to £2,048 per shop in 2020/21, but must remember that this income is subject to state aid limits (cumulative €200,000 de minimis threshold across 3 years). Charities will therefore need to monitor the total amount of state aid (including from other sources) they had received (across the whole organisation) over a three year period to ensure that they do not exceed the thresholds. Read more here.

• Cairncross Review: The Government has now responded to the Cairncross Review. The confirmation of a review of the VAT zero rate for digital newspapers is welcome and has long been supported by CTG. It also follows shortly after the helpful decision in the News Corp case – read more here. CTG also welcomes the view taken by the Charity Commission (on behalf of the Government) that it would be inappropriate to extend charitable status (and associated tax reliefs) to local journalism where the organisations would not ordinarily have qualified – to do so would have risked diluting charity tax reliefs (including business rates relief) and the value of charity status – other more appropriate mechanisms are available to support local journalism.

• UK-EU trade negotiations: The European Commission has published slides that set out the principles of the “level playing field” that the Commission would like the UK to sign up to during trade negotiations. The slides include state aid (including an independent UK authority to work with the Commission), state-owned enterprises, taxation, labour and social, environment and climate change.

• Duty classification of mastectomy bras: Following the UK Supreme Court’s 2016 judgment that Amoena’s mastectomy bras should be classified as orthopaedic appliances (duty free) rather than clothing (duty at 6.5%), the Customs Code Committee met and decided (with only the UK dissenting) that the Supreme Court had got it wrong.

• Diverted profits tax: 2015 saw the introduction of the diverted profits tax (DPT) which was designed to change behaviour and clamp down on contrived tax schemes used by the largest digital multinationals to avoid corporation tax as a result of their tax structures allowing for profits to be offshored rather than taxed in the country where their sales take place. New HMRC statistics indicate that this has resulted in £4.6bn being paid by the end of 2018/19. Members will recall that following representations by CTG in 2014 a charity exemption from the Diverted Profits Tax was secured. While this tax was not designed to target charities it was a classic example of charities being unwittingly penalised by wider tax legislation – you can read more background on the exemption here.

• Treasury Committee: Mel Stride MP has been re-appointed chair of the Treasury Committee. All Committee chairs are required to seek re-election following the general election. Mel Stride was formerly Financial Secretary to the Treasury and involved in the early stages of the introduction of Making Tax Digital. Meg Hillier has also been re-elected as chair of the Public Accounts Committee.

• Charity Commission MoU with ACCA: The Charity Commission has signed an agreement with ACCA allowing the regulator to refer cases of poor professional practice by accountants and finance professionals to the professional body, the first such arrangement in the accountancy sector.

• Irish VAT refund scheme: The 2020 Irish General Election manifesto proposals by Irish representative body the Wheel call for the Irish VAT compensation scheme for charities to be expanded plus other tax reforms to incentivise giving. The interest in the scheme so far shows the importance of tackling irrecoverable VAT across Europe. 

• VAT cases: HMRC’s updated VAT case law tracker includes a number of interesting updates on cases of interest to CTG members. CTG’s own VAT case law tracker can be accessed here.

CTG Observer Member Socrates Socratous recently published a helpful article in Civil Society summarising recent VAT developments and cases affecting charities

Resources

CTG has published a summary of its work over the last ten years, highlighting the impact of its representations, against a backdrop of austerity, Brexit, devolution and a Merry-Go-Round of charity tax ministers. You can also read a more detailed summary of charity tax developments and CTG’s work on behalf of members in 2019 here.

A full archive of CTG commentaries can be found here. If you would like to write a commentary for CTG, please get in touch. Recent newsletters can be accessed here and the updated VAT case law tracker can be read here.

CTG has published a Making Tax Digital (MTD) “mythbuster” for charities, addressing common misconceptions. In addition, following representations by CTG, HMRC has published an updated sign-up timeline for organisations (including charities) that had their MTD mandated start date deferred until October 2019.

A reminder that CTG now has a provisional date for the 2020 Tax Conference – Wednesday 20 May 2020, at the Wellcome Trust, in London. Further details will be confirmed soon.

If you have been forwarded this e-mail and would like to receive it directly, please register here