CTG Newsletter – 3 February 2020

Influencing policy on charity taxation

Recap of policy and technical developments in January 2020

A recap of charity tax news, consultations and commentaries that took place in January can be found here.

CTG is also documenting its policy work and key developments each month here.

Consultation on charitable rates relief for schools and hospitals in Wales

The Welsh Government is seeking views on charitable rates relief for schools and hospitals in Wales. The consultation discusses the role of charitable relief in supporting schools and hospitals, looking at the types of bodies which receive relief and whether it is appropriate that some schools and hospitals receive charitable relief while others do not. While the consultation is focused on charitable relief for private schools and hospitals, the Welsh Government would also like to hear views on other approaches which might help to ensure that charitable relief is targeted effectively.

CTG responded to a call for evidence on the Scottish Non-Domestic Rates Bill highlighting concerns that removal of rates relief for mainstream independent schools in Scotland risks the creation of a two-tier status for charities with tax reliefs applicable only to the most “deserving charities”. The Scottish Charity Regulator, OSCR, expressed similar concerns and it will be interesting to see how the Charity Commission for England and Wales responds to the consultation.

CTG will be submitting a response, so please complete the feedback form on the CTG website or send thoughts to info@charitytaxgroup.org.uk by 14 April 2020.

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 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.

Changes to the Employment Allowance from April 2020

The Employment Allowance is a helpful relief that currently entitles most charities a reduction in their secondary Class 1 NICs liabilities of up to £3,000 per year.

A policy paper published by HMRC confirms that the (Draft) Employment Allowance (Excluded Persons) Regulations 2020 will restrict access to the Employment Allowance for a tax year to employers with secondary Class 1 NIC liabilities below £100,000 in the previous tax year.

As a result of this restriction, from the 6 April 2020 the Employment Allowance will be operated as de minimis State Aid, which means that employers must have space to accommodate the full Employment Allowance within their relevant de minimis limit.

HMRC undertook a technical consultation on Employment Allowance legislation last year. CTG submitted a short response to the consultation noting that charities reliant on a large workforce will no longer benefit from this relief, adding to the cumulative burden of taxation facing the sector. CTG’s response also noted that for those charities with NIC liabilities below £100,000, they will in future need to consider their overall state aid limit, particularly if they are in receipt of other reliefs subject to State Aid, such as the Retail Discount.

Readiness for IR35/off-payroll working rules

Off-payroll working rules are due to change in April 2020 and large charities may be affected. CTG has collated a wide range of HMRC guidance notes and expert commentaries here. The Check Employment Status for Tax (CEST) tool helps individuals and organisations decide if a worker should be treated as employed for tax purposes. It takes users through straightforward step-by-step questions.

The focus now is on customer readiness.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.

Round-up of topical developments

Report claims Making Tax Digital is not achieving its goals: A report jointly published by the Chartered Institute of Taxation and Association of Taxation Technicians claims that Making Tax Digital (MTD) is “far from achieving its goals”. The two organisations are calling for a comprehensive review of the roll out of MTD before HMRC rolls out digital reporting obligations more widely.
Parliamentary Question on VAT on electronic publishing: The Government has responded to a written question on the implications of the recent News Corp case for VAT on digital publications, confirming that it is considering next steps. The Upper Tribunal recently handed down a ruling that digital newspapers could be zero rated although it is expected that this will be appealed by HMRC. A commentary on the wider implications for the VAT and ready material can be read here. CTG will continue its long-standing call for a zero rate for charity e-publications in its Budget submission.
APPG recommends reform to inheritance tax: The All-Party Parliamentary Group on Inheritance and Intergenerational Fairness has published a report on suggested reforms to inheritance tax (IHT). The APPG report suggests replacing the current IHT with a flat-rate gift tax payable both on lifetime and death transfers. The report recommends that while most exemptions should be abolished, the charity exemption should be retained, but it suggests that there be no reduced rates on the remaining estate on death if more than 10% is given away.
£3m Village Hall fund update: DEFRA has reported that village halls in England received £1.2 million through the Village Halls Improvement Grant Scheme. The scheme, run by charity organisation Action with Communities in Rural England, allows village hall committees to apply for grants of up to £75,000 towards refurbishment and alteration of their buildings.
EU Commission publishes draft negotiating mandate: The European Commission has published its draft negotiating mandate with three components: general arrangements, economic arrangements and security arrangements.
HMRC updates appeals reviews and tribunals guidance: HMRC has updated its guidance on appeals reviews and tribunals. The update states that the guidance has been amended throughout, without providing any further detail.
EU Commission 2020 Work Programme: The European Commission has published its 2020 Work Programme which sets out key initiatives for the year ahead. Although the UK is set to leave the European Union on 31 January, it will still be subject to its rules until the end of the transition period (currently written in law to end on 31 December 2020). Priorities include measures to tackle tax avoidance, address business taxation and review rates of VAT.
OECD consultations on BEPS: At a meeting of the inclusive framework on base erosion and profit shifting (BEPS), participants agreed to go ahead with the OECD’s proposed two pillar negotiation. The inclusive framework, endorsed the ‘unified approach’ set out in pillar one. However, the OECD admitted it would be a challenge to develop new international rules by the end of the year. The digital tax rules under pillar one are designed to ensure that multinationals conducting sustained and significant business in places where they may not have a physical presence can be taxed in such jurisdictions. It requires the negotiation of new rules on nexus, covering where tax should be paid, and new profit allocation rules. CTG responded to consultations on Pillar One and Pillar Two of the OECD’s proposals to address digital economy tax issues. While most charities will be unaffected due to their structure and the nature of their operations, some organisations, particularly in the education sector could be affected.

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.

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.

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 wants to demonstrate its support for 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.

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