The Finance Bill 2015 was published yesterday with accompanying Explanatory Notes.

The Bill confirms the introduction of VAT refunds for certain charities (including palliative care charities, search and rescue charities, air ambulances and medical courier charities). CTG has been heavily involved in campaigning for VAT refunds for charities and is delighted that an important precedent has now been set for wider refund schemes for the sector.

Importantly, following representations by CTG, the Bill includes a charity exemption from the Diverted Profits Tax. Charities were not initially excluded from this legislation and therefore it would apply to charities (trust or corporate) within a “charitable group” operating Gift Aid. While Gift Aid is recognised by Government as not being avoidance or abuse, the legislation was not conditional upon an avoidance motive being present – it merely requires a “mismatch” causing a “tax reduction” even if it results from the legitimate operation of reliefs.  CTG identified the mismatch between the tax deduction for a charitable gift (Gift Aid, property, shares) by a charity subsidiary and the tax-free receipt in the hands of the charity. CTG therefore submitted a response to the consultation stressing that charities must be excluded from this legislation.

In addition, the Finance Bill introduces legislation that will enable regulations to be made which make it easier to operate Gift Aid through an intermediary.

An exemption has also been introduced that will mean that ministers of religion will see no change in the treatment of their benefits in kind for tax and NICs purposes, following the abolition of the £8,500 threshold. As reported in the Budget, there is a clause in the Finance Bill that ensures that the Commonwealth War Graves Commission and the Imperial War Graves Endowment Fund can continue to claim charity tax reliefs.

Comment:

Charity Tax Group (CTG) Chairman, John Hemming commented:

“We are very pleased that that the Government has listened to our concerns about the Diverted Profits Tax and has built in a specific legislative exclusion for payments to charities. While this tax was not designed to target charities, this is a classic example of charities being unwittingly penalised by wider tax legislation. If there had not been a change there was a danger that this tax would have made it impossible for charities to use charity trading subsidiaries.

We are also pleased that refund scheme for search and rescue charities, air ambulances, blood bikes and hospices will come into effect on 1 April 2015.  CTG has been heavily involved in campaigning for VAT refunds for charities and is delighted that an important precedent has now been set for wider refund schemes for the sector.

CTG is working closely with the HMT/HMRC working group on the new rules for Gift Aid and intermediaries and will be scrutinising the proposed regulations in the coming months.”