Charity VAT and Tax Update 26 th February 2013
Charity VAT and Tax Update Adrian Houstoun Geraint Lewis David Hadley
Charity VAT and Tax Update Business/Non Business Activities Geraint Lewis Direct Tax David Hadley Other recent developments Adrian Houstoun Questions
Part 1 BUSINESS AND NON BUSINESS ACTIVITIES GERAINT LEWIS VAT Principal Email: glewis@kingstonsmith.co.uk Tel: 020 7566 3830
VAT & CHARITIES Donations Vs Sponsorship Business Non Business Recent Case Law Developments South African Tourist Board Ines Zimmermann
Donations Vs Sponsorship The basic rules A donation is freely given no expectation of anything in return except for a simple acknowledgement to the donation (eg mention in an annual report) Sponsorship given in a clear expectation of receiving something of value in return, typically advertising. Value of what the sponsor gets not significant
Donations Vs Sponsorship Well established rules, generally well understood and for commercial uses reasonably easy to apply. However, the line between sponsorship and donation is becoming more difficult particularly where public sector funding is the issue.
Donations Vs Sponsorship Apple and Pear Development Council Direct and Immediate Link Edinburgh Leisure: Statutory Obligation - Bath Festivals Trust: Something the LA would have done Hope in the Community: Something funder wanted
Donations Vs Sponsorship No consistency. Local Authorities (and similar) do not act like commercial sponsors. Often very difficult to tell if the funding body is receiving anything of value eg was the Council really getting anything particularly valuable in the Bath case? Different parties may want different answers.
Business Non Business Again basic principles well known VAT related to a non-business activity cannot be recovered as input VAT. Requirement to undertake a business/nonbusiness appointment. Basic principles similar to partial exemption but less formal legislation.
Business Non Business What is a non-business activity? Is something done free of charge automatically non-business? Third party consideration? eg local authority paying for libraries Is non-business always a bad idea? Relevant charitable purpose buildings Donations v- Sponsorship
Recent Case Law South African Tourist Board Can a government agency (or similar) be in business? Ines Zimmermann VAT treatment of private nursing case in Germany Fiscal Neutrality Increasing Issue of EU Court Good news or bad news for the UK Charity sector?
Part 2 GIFT AID ON SMALL CHARITABLE DONATIONS ( GADS ) DAVID HADLEY Senior Tax Manager Email: dhadley@kingstonsmith.co.uk Tel: 020 7566 3578
Basics From 6 April 2013 Donations of 20 or less Must be in cash (ie coins and notes) Must be received in UK and banked in UK accounts No benefits (except negligible such as Stickers)
Repayment Can claim back basic rate on donation Thus on 10 donation can reclaim 2.50 However, the amount that can be claimed by a charity in a tax year is capped.
Annual Cap The amount a charity can claim is capped at the lower of: an amount equal to 10 times the donation made to the charity under the normal Gift Aid scheme; and the relevant amount.
Relevant Amount Usually annual donations of 5,000 (so tax of 1,250) but: Can be lower if connected charities; and Can be greater if charity operates through a number of community buildings.
Other Tests The charity must also: Have operated as a charity for at least two tax years before the tax year in which the GADS is made; and Have made successful Gift Aid claims in at least two of the previous four tax years If a charity incurs a penalty under Gift Aid or GADS it can not claim GADS in the year of penalty nor in the immediately subsequent tax year
Connected Charities Charities are associated if: have similar purposes and activities; and are under common control. The relevant amount is divided by the number of connected charities eg if two connected charities relevant amount is 2,500
Carrying on a charitable activity from a community building Runs a charitable activity in a community building on 6 or more occasions in a tax year and: carries out a charitable activity with a group of people in the community building at least 10 of whom are of a class of people for whose benefit the charitable activity is being carried out. the activity is of a kind that a charity makes is available to the public or a section of the public; and none of the group is required to pay to access the building or part of the building.
Charitable Activities NB: The people forming the group of 10 or more do not need to be the same on any one occasion. Charity activity means an activity carried out for a charitable purpose OTHER THAN PRIMARILY FOR FUND RAISING. Charity does not include a Community Amateur Sports Club.
Community Buildings Means a building (such as a Village Hall, Town Hall or place of worship) or those parts of it, to which public or a section of the public have access at all or some times but excluding parts of a building: used for residential purposes; used for the sale or supply of goods; used wholly or mainly for other commercial purposes except at any times where: - the charity is carrying out a charitable activity in those parts; and - the parts are available for use exclusively by the charity in carrying out the activity.
Relevant sum if charity runs through community buildings The sum of: the sum of the community building amounts for each community building plus; the remaining amount.
The Community Building Amount The lower of: the sum of the small donations that are made to the charity in the community building in the tax year by group members while it is running charitable activities in the building; or 5,000
The Remaining Amount The lower of the sum of the remaining donations; and 5,000 Remaining donations means the small donations made to the charity in the tax year other than made to it in community buildings in the tax year by group members while running charitable activities in the buildings.
Community Building Example 1 Medical charity has monthly meetings in 2 community buildings and carries out street collections. Collects more than 5,000 in both buildings and on street collection. Can claim on donations up to 15,000
Community Building Example 2 One community building group collects 6,000 of small donations; another community building group collects 1,000 in small donations; and over 5,000 of small donations is obtained through street collections. Can claim on donations up to 11,000 ( 5,000 street collections + 1,000 + capped 5,000)
Community Buildings and Connected Charities Complex rules on how the limit is calculated
Part 3 OTHER RECENT DEVELOPMENTS ADRIAN HOUSTOUN VAT Partner Email: ajh@kingstonsmith.co.uk Tel: 020 7566 3802
OTHER VAT DEVELOPMENTS Cost sharing exemption Cultural Services Postal Services Bulk Mailing Investment Managers Fees Advertising supplied to charities VAT and e books Listed Buildings
Cost Sharing Exemption Introduced from 17 July 2012 Imposed by EU law on HMRC Two or more exempt on non-business entities may share costs and overheads no VAT added to consideration
Cost Sharing Exemption Legislation contained in Value added Tax Act 1994 Schedule 9 Group 16
Cost Sharing Exemption Conditions Separate entity owned by those sharing the costs Each of the members must have exempt supplies or have 5% non business activities Item 1 (a) and HMRC guidance The shared services must be directly necessary for the members exempt or non-business activities Item 1 (b)
Cost Sharing Exemption Conditions The cost sharing entity must recover the exact reimbursement of the cost from its members Item 1(c) The cost sharing entity must not create distortion of competition Item 1 (d)
Cultural Services
Cultural Services British Film Institute By derogation UK was allowed to standard rate cultural services until 1 January 1990 From 1 st June 1996 the law changed to make them exempt BFI claimed exemption on film for the interim period 1/1/90 to 31/5/1996
Cultural Services British Film Institute HMRC argued EU law was not sufficiently precise to be relied upon BFI argued that EU legislation says certain cultural services qualify for the exemption Tribunal found for BFI
Cultural Services British Film Institute HMRC themselves said in evidence that the floodgates could open. If a cinema is cultural, what isn t? Botanical gardens Stand-up comedy shows
Cultural Services HMRC have in the past denied cultural exemption in cases where it was allowable Group 13, Note 2 non profit making, managed on a voluntary basis In such situation you could make a claim for a refund Net off output tax accounted for and input tax reclaimed, one claim alone was for 1.6m
Bulk Mailing In January 2011 Royal Mail had to start charging VAT on door drop and similar services Exemption only applies to the national postal operation service You will probably find that your bulk mailing has become subject to VAT Your downstream service provider is likely to charge you VAT on the entire charge, which includes the final mile delivery charge by HMRC
Bulk Mailing How to reduce the VAT charge The final mile charge a high percentage of the total is exempt from VAT, - not subject to competition Sign an agency customer agreement with Royal Mail DSA provider e.g. City Link, DX Network acts as agent You pay VAT on sorting and delivery, not the Royal Mail part of the charge
Investment Management Fees Guide Dogs For The Blind GBDA instructs investment managers to provide services in relation to the management of its investments GBDA submitted a claim, following the Church of England case for recovery of a proportion of VAT on the fees paid during 1973 to 1990 HMRC rejected the claim
Advertising Supplied to Charities Subject to Exclusions Zero Rated Advertising to the public at large Includes services of design or production e.g. a poster or filming Goods closely related e.g. a film cassette or photograph
Advertising Supplied to Charities Exclusions to Zero Rating You can t zero rate advertising to a selected band of people for example by address. Direct mail and telesales are therefore excluded You can t zero rate a supply used to create advertising on the charity s own website
Advertising Supplied to Charities Exclusions to Zero Rating You can t zero rate a supply to the charity which the charity itself uses to produce its own advertising
Advertising Supplied to Charities Medium for the advertising those that communicate with the public TV Cinema Billboards Sides of vehicles Newspapers Printed publications Beer mats, parking tickets etc but not the sale of those items
Advertising Supplied to Charities Agencies If an agency acts as principal the supply of advertising to it will be standard rated and the supply by the agency to the charity will be zero rated If an agency acts as agent the supply by e.g. the newspaper will be zero rated but the agency fee to the charity will be standard rated Suggested that you use the wording in Notice 701/58/02 part 10 to confirm your status as a charity.
VAT and e Books On joining the EU the UK given right to retain zero-rating but that it could not be extended HMRC s stance is that including e books is such an extension and not permitted Extension or correction of a misinterpretation Challenges are in the pipeline in both the UK and EU
Budget 2012 Listed Buildings In VAT terms a listed building is a dwelling, a charitable building or a relevant residential building Hitherto the VAT status of work to such buildings was Improvements Zero-rated Repairs Standard rated Disappointing that the Government has decided to withdraw the relief Change will be from 1 st October 2012 but with anti forestalling rules