Budget 2021: Was it kind to charities?

Whilst the government reminded the sector that it provided £750m of support last year to assist frontline charities through the coronavirus pandemic, unfortunately, there were no real sector specific announcements today to help plug the funding gap.

Key points for charities from Budget 2021

  • Furlough is to be extended until the end of September at 80% of salary up to £2,500, with employers being asked to contribute 10% in July and 20% in August and September.
  • Business grants are to be replaced by Restart Grants of up to £6k from April, however, it is unclear how these interact with State Aid limits .
  • The 100% business rate holiday is extended until June, however, most charities with shops and attractions already receive 80% relief.
  • No changes to the rates of income tax, national insurance or VAT.
  • Corporation tax rates to increase in April 2023 to 25% for companies making profits over £250k, however, most charities and their subsidiaries do not pay Corporation Tax.
  • VAT registration threshold to be frozen at £85k until 2024.

Key funds announced or re-announced in Budget 2021

Cultural Recovery Fund

A £300m boost has been given to the previously announced £1.57m Cultural Recovery Fund. Applications are currently closed to the fund, however, more information can be found here.

National Museums and cultural bodies

Government sponsored National museums and cultural bodies will receive £90m. No further information can be found on this, so we are unsure if this will trickle down to local museums and cultural bodies.

Sport Recovery Package

The government have promised £300m for a Sports Recovery Package. This will help fund spectator sport in England, sporting clubs and governing bodies. More information will be released in the coming weeks.

Community Ownership Fund

A new £150m fund to enable community groups to bid for up to £250k matched funding to help them buy local assets to run as community owned businesses e.g. pubs, theatres, post offices and sports clubs. In exceptional cases up to £1m of matched funding will be available to help establish a community owned sports club or buy a sports ground at risk of loss.

Levelling Up Fund

Announced in November 2020, the government have now released a prospectus for the £4.8bn Levelling Up Fund. This fund is for local infrastructure with the aim to invest in transportation, regeneration and culture. Applications to the fund will be made by councils by mid June 2021, with the expectation that MPs of an area will back one bid they see as a priority.

As the bidding authorities should consult local stakeholders (including community representatives, environmental representatives, universities and colleges), charities may well be asked to get involved.

Contact us

Please contact Simon Brown (simon.brown@taitwalker.co.uk) or Louise Cottam (louise.cottam@taitwalker.co.uk) if you have any queries in relation to the 2021 Budget.

Making Tax Digital for Corporation Tax: Charities

In 2026, charities may have to report to HMRC for Corporation Tax purposes under new Making Tax Digital rules, which may mean providing information on income/expenditure to HMRC on a quarterly basis.

We understand from the Charity Tax Group that HMRC currently believe that most charities could need to file CT returns to HMRC going forward.

Background information

Originally the government said that non-trading activities of charities would be outside of the scope of Making Tax Digital (MTD). However, they say that:

MTD for VAT has shown that, at least for larger charities, operating the MTD requirements has not proved to be more than difficult than for a comparable business. Moreover, discouraging some charities from joining MTD by in effect making it voluntary will mean many will not get the benefits of going digital that other entities will enjoy.

As a result the government proposes to extend the scope of MTD for CT to all charities that are within the scope of Corporation Tax (CT) and are required to file a CT return, not just trading subsidiaries.

What is MTD for CT?

Whilst details have not been published on if/how MTD for CT would apply to charities, for an average company it would involve:

  • Ensuring records are maintained digitally
  • Using MTD software to provide quarterly summaries of income/expenditure to HMRC
  • Submit an annual CT return in MTD compatible software

The image below demonstrates the change:

Source

When is MTD for CT likely to be introduced?

MTD for CT will not be introduced until 2026 at the earliest.

Whilst this is a long way off, HMRC are consulting now on various proposals, so now is our opportunity to feedback.

How might this impact charities?

It is not clear how charities will be affected by this. For example:

  • Could irregular filing be abolished (i.e. meaning all charities would have to file a return annually)?
  • Could charities be exempted from filing quarterly reports?
  • How much will this additional administration cost in terms of time and software expenditure?

MHA Tait Walker are attending an event on the 9th of February to find out more and feed back preliminary concerns.

Call for information

We intend to respond to the whole consultation document in writing. To assist with our response we would like to ask our clients if they have any feedback on the charity specific questions.

In the consultation document, page 32/33 sets out the position for charities, CASCs and other NFP organisations. There are two key areas that HMRC are asking for responses to:

  1. Question 19: Should charities, CASCs and other not for profit organisations, be within the scope of MTD for CT where they have income within the charge to CT and required to complete a Company Tax Return? If not, please explain why you consider an alternative approach is necessary for charities and what criteria should be applied to assess eligibility for this?
  2. The government welcomes views from charities, CASCs and other not for profit organisations on how MTD requirements might best be tailored to work for them.

Contact us

If you have any comments or would like to discuss this further, please email Louise Cottam (Charity Tax Manager) at louise.cottam@taitwalker.co.uk by 1st March 2021.

Charities and Brexit – issues for consideration

Charities are now becoming aware of the practical hurdles coming into play due to Brexit, whether it be charities selling goods overseas as part of their activities, or the creative sector having to address new restrictions arising from the movement of people.

How Brexit might impact your charity depends on what your activities are and where/how you carry them out. We have set out below some key areas for consideration.

Right to live and work

EU nationals no longer have an automatic right to live and work in the UK, and vice versa, UK nationals no longer have an automatic right to live and work in the EU.

Action: Charities should ensure that all staff and volunteers have the correct Visas in place to carry on their work. This could add significant costs to your organisation and may be particularly relevant to charities that run touring theatrical productions.

Export of goods

Do you export goods or have the potential to? For example, does your charity have a website which could make sales to overseas nationals?

Exporting goods to the EU can now be very complicated (we are not going to go into detail in this blog, but further information can be found at our Brexit hub).

Action: Consider whether your organisation makes overseas sales or has the potential to. Research any actions required to ensure exports can continue to be made on a timely basis. For example, update your website with relevant terms and conditions (e.g. which party will pay any import/export charges, or will you only make UK sales?)

Trading with Northern Ireland

Do you export/import goods to/from Northern Ireland, or have the potential to?

There are new rules specific to Northern Ireland which must be adhered to. Non compliance can mean long delays or the return of goods.

Action: Consider whether your organisation trades with Northern Ireland. Research any actions required to ensure exports/imports can continue on a timely basis.

Import of goods

Do you import goods from the EU? There are now a whole host of issues to consider, for example:

  • Which entity will be the importer of record (i.e. who is legally responsible for the payment of import VAT and/or Import Duty)?
  • What INCOTERMS apply to the movement of goods (these formalise where title passes in the goods, which party has responsibility for insurance, which party is responsible for delivery etc)?

These are just two of many issues that require consideration.

Action: Importing goods from the EU can be very complex and requires considerable thought prior to entering into an agreement to avoid unexpected costs and delays.

Data protection

Whilst the General Data Protection Regulation (GDPR) derived from the EU, it is still part of UK domestic law.

Post Brexit the UK has the independence to review the framework, however, the current rules must be followed for now.

Action: Continue to ensure your organisation has appropriate systems and controls in place around GDPR.

Current EU funding

Charities will continue to get any EU funding awarded prior to 31 December 2020. Furthermore there are still some EU funds that you can apply for post Brexit.

Government funding to replace EU funding

Full details of the government funds designed to replace EU support are yet to be published. However, the government have announced the following funds:

  • £4bn Levelling Up Fund – to support communities with regeneration projects
  • UK Shared Prosperity Fund – the aim being to “reduce inequalities between communities

Contact us

This blog has provided high level information on some key areas for consideration.

If you would like any further information or to discuss the points in more detail please contact:

Simon Brown (Head of Charities) – simon.brown@taitwalker.co.uk
Alastair Wilson (Tax Partner) – alastair.wilson@taitwalker.co.uk
Louise Cottam (Tax Manager) – louise.cottom@taitwalker.co.uk