Charity Tax Commission issues charity tax reform report

The Charity Tax Commission has issued its report into reforming charity taxation. The Commission has focused largely on VAT reliefs, Gift Aid and Business Rates relief, though there is also some mention of the overall way in which charities use trading subsidiaries to undertake trading activities and the corporation tax implications, and payroll giving.

The Commission's recommendations which will be of most interest to unviersities include areas which BUFDG and its members have been working on for some time:

VAT

VAT rules for charities using shared resources should be reviewed to support innovative collaboration. This should include a review of guidance around the practical implementation of the relevant charitable purpose (RCP) rules, as they apply to VAT. This would help support innovative public and private sector collaboration in charity research institutions and help the government achieve its commitment for UK R&D spending to reach 2.4 per cent of GDP by 2027. (We are grateful to BUFDG members for providing information to the Commission on this point, for which BUFDG also provided some of our reports).

Public bodies should be required to communicate the VAT status of any funding relationship, using clear guidance provided by HMRC on how to decide when a funding offer or tender is or is not subject to VAT. HMRC should work with the voluntary sector to develop this guidance, informed by real-world examples of complex past judgments to ensure public bodies do not automatically adopt risk-averse behaviour to the detriment of charities.

Government should review the approach to the VAT treatment of online advertising to reflect the reality of modern-day fundraising practices.

HMRC should apply the same VAT rate to e-publications such as for their printed equivalents.

Business Rates Relief

However a charity decides to set up its structure, its need to raise money for its charitable purpose remains the same. The report therefore recommends that government consult on whether to roll out rate relief to all wholly-owned subsidiaries.

To help charities plan their finances with confidence, criteria for discretionary rate relief should be published and easily accessible on all local authority websites. Government should also issue guidance to billing authorities clarifying that mandatory relief is available to smaller unregistered charities, not just those registered with the Charity Commission. To save charities and billing authorities time and effort, the Government should create a standard downloadable form available on GOV.UK, recognised by all billing authorities and which could be submitted electronically to each billing authority.

Corporation Tax

Trading - the report states that the Commission believes 'that this area merits further consideration and consultation, possibly extending the primary purpose trades tax exemption to all trades so long as the profits of the trade are applied for a charity’s objects.'

Gift Aid

The value of higher-rate and additional-rate relief should be redirected to charities on top of the basic-rate relief they already receive, with an opt-out from this if  donors specifically requested it.

Following its consultation on Gift Aid and Digital Giving in 2013, government should re-explore the feasibility of a Universal Gift Aid Donor Database, including how its operation would potentially impact on charities of all types and sizes.

HMRC should consult with voluntary sector organisations and phone companies on the practicalities of text donations and Gift Aid declarations with a view to providing guidance on the processes that need to be in place for a sufficient audit trail. Building on the work of ‘Future of Gift Aid’ group convened by the Charity Tax Group, HMRC should also look at how emerging technologies can make the administration of Gift Aid easier and more efficient.

The Government should conduct a review of Corporate Gift Aid to assess whether the previous changes have been successful and examine how to maximise the amount of money charities receive through tax incentives for corporate entities.

Other Recommendations in the Report

These recommendations are probably of less immediate interest to unviersities, but are still relevant.

Gift Aid

Government should do more to promote awareness and understanding of Gift Aid, including the benefits and eligibility criteria. For example, HMRC should include information about Gift Aid when corresponding with both the taxpaying and non-taxpaying public.

To improve accessibility further and reduce the administrative burden associated with the Gift Aid Small Donations Scheme, government should explore removing the matching requirement which stipulates that claims cannot be more than 10 times the Gift Aid claimed in the same tax year. Increasing the amount that can be claimed each year from £2,000 (on £8,000 worth of donations) would also encourage more organisations to engage with GASDS, while allowing text donations would reflect the increased use of smartphones and the growth in impulse donations.

Payroll Giving

To increase take-up, government should make it mandatory for all employers over a certain size to offer a Payroll Giving scheme.

Will Writing

The Government should make fees for writing charitable wills exempt from VAT (to encourage more people to leave money to charities in their wills).

Data

Given the importance of accurate and timely data for policymaking and public trust in charities, the Commsision recommends that government improve the quality of its published statistics on how much tax relief individual charities receive, broken down by type of relief.

HMRC should also release its register of charities as open data, as this would enable better understanding of organisations that receive tax reliefs but are not registered charities with the Charity Commission, such as universities, academies and housing associations.

To demonstrate their openness, the Commission believes that charities with revenue of over £1 million per annum should publish detailed information in their annual reports about the amount of benefit they receive from Gift Aid and business rates relief. HMRC and charities should consult on an approach that allows further information to be gathered on the VAT reliefs obtained and the irrecoverable VAT suffered by charities. Putting this information in their annual reports would help explain how these tax breaks go towards the public benefit.

Further research

The Commission's report also recommends further research into the following areas:

• the extent to which individual reliefs generate public benefit for society and value for money for the Exchequer, as well as the impact if they did not exist or were reduced;
• the impact of business rates relief for charities on small businesses and local high streets;
• the bureaucratic challenges associated with the administration of reliefs and rules, especially Gift Aid, VAT and direct taxation;
• the opportunities that advances in technology present for the administration of reliefs and promoting philanthropy;
• how the UK tax system compares to other countries, and its ability to attract and compete for overseas philanthropy; and
• the potential for providing tax breaks for organisations that attract volunteers.

Looking further ahead, the Commission also recommends:

• A long-term review of Business Rates relief and how it operates.
• A further review of Gift Aid once better data is available.
• That government conduct a full review of the way that VAT operates for charities. It is clear that the current regime contains systemic anomalies that disincentivise efficiency and effectiveness and impede charitable activity – such as the sharing of services.... Any review should also bring together charities and tax authorities to explore the challenge that irrecoverable VAT presents to the sector, drawing on the Charity Tax Group’s forthcoming research into VAT relief for charities, which will look to quantify the VAT relief that charities claim and evaluate the social benefit VAT reliefs generate.

(You can find out more about the Charity Tax Group VAT reliefs project here and you can get involved by contacting the Charity Tax Group).

In addition, there were recommendations on Social Investment Tax Relief, Mergers and Property Transactions, Stamp Duty Land Tax, and Climate Change Levy.

You can read the full report here, and you can find further commentary on the report on the CTG website