HMRC is set to announce a new VAT refund opportunity for hospices.
This has come about as a major reversal of HMRC’s existing policy on the VAT treatment of Continuing Care funding received by hospices and other palliative care charities.
The anticipated change will come after significant lobbying and pressure from those within the sector. It should result in significant VAT savings, both current and also retrospectively. This in relation to periods where HMRC’s current policy has been followed.
Hospices have enjoyed a significantly enhanced VAT recovery position since the introduction of changes on 1 April 2015. This effectively granted palliative care charities special status to recover VAT on their non-business activities. However, a point of contention has always been HMRC’s insistence that the provision of care to a named patient under a Continuing Care funding arrangement was an exempt supply for VAT purposes.
Consequently, there was a requirement for hospices to carry out often complex calculations to work out the exact amount of recoverable VAT. In turn, there were restrictions on the recoverable VAT for both capital expenditure and ongoing running costs.
Impact of likely new change
However, we now understand that HMRC have conceded this point. They will shortly be revising their published guidance to confirm that Continuing Care funding should be treated as non-business income. This will open the door to increased recovery.
What to look out for
When you make a claim for the hospice’s non-business input tax, have you been disallowing an element of that input tax in relation to the funding received for named patients under the Continuing Care funding? If you have, the opportunity should present itself to reclaim the input tax you had previously not claimed, as well as claiming all the non-business input tax going forwards.
What to do now
We are expecting the policy change to have retrospective effect. This would open up the ability to revisit the recovery of VAT on general overheads, and also potentially on any significant capital expenditure undertaken within the past ten years. If you are likely to be affected by the policy change, we strongly recommend you review your position. You may need to submit a claim to HMRC where appropriate.
We can assist you to review your current position and establish whether a claim is possible. If you would like our assistance with this matter please get in touch.
Here’s what you need to know before filing your charity’s 2018 annual return and accounts (there are 20 new questions!):
Of course you never leave this until the last minute! But when you go to file the 2018 accounts just before the 31/1/2019 deadline (for those with a 31 March 2018 year end) – being prepared to answer the questions (and therefore collating the relevant information) on the annual return will help you with this annual process.
The Charities Commission used to just ask you simple questions where the data could be extracted directly from the year end accounts (which were just in front of you as you completed the annual return). However, these days you need to have other data available to be able to complete the annual return.
The link below gives full detail of the changes and the new information that you will be required to obtained before filling in the annual return. Some of the data you will need includes;
- Other than grant agreements, does the charity receive income from contracts with central government or a local authority – if yes then you need to know; how many contracts; and, the value of that income.
- If your charity received grants from central government or a local authority, again you need to know; how many grants there were; and, the total value of that income.
- Similarly, if your charity received income from outside the UK you need to know how much; and, if the money came from non-UK governments, charities, donors or institutional donors.
In total there are 41 questions, of which there are 20 new questions and 6 amended questions – which is a big increase from the 17 questions asked last year in 2017!
So please don’t leave the filing of the accounts and completion of the annual return until the last minute. It will also be worthwhile compiling the additional information (which cannot be extracted from the accounts) during or at the end of the year so that it is to hand when you do go to file.
Good luck and please ask if you have any queries.
Contact me at email@example.com or 0191 226 8319 (DD)
For further details of the complete changes see the Charities Commission website.
The Common Reporting Standard (CRS) came into force in January 2016. It is an information exchange regime aimed at international tax transparency. Under CRS “financial institutions” are required to report information about their clients to their client’s domestic tax authorities with the aim of preventing the use of offshore structures to avoid tax.
Unfortunately the definition of a “financial institution” is very wide, and can cause charities to fall into the regime.
Definition of a “financial institution”
There are two key points which indicate that a charity, may be a “financial institution”:
- In the last three calendar years more than 50% of income was derived from investments, and
- At least some part of the charity’s assets are managed by an external investment manager
It is possible that banks or investment managers may ask charities to provide details of their CRS status. In which case charities will have to self-certify as to whether they are a “financial institution” or an “active non-financial entity”.
Charitable financial institutions must provide information to HMRC on “reportable account holders” on an annual calendar year basis. The first reporting deadline is 31 May 2017 for the 2016 calendar year. If however, the charitable financial institution has no reportable account holders, no return is required and the charity does not need to register with HMRC for an Automatic Exchange Of Information (AEOI) account.
Reportable financial account holders
This depends on the legal form of the charity and whether the account holder resides in a reportable jurisdiction. Note that no report is required in respect of UK resident account holders (although information is still required to be collected for every account holder even if it isn’t reported).
Charitable companies (whether limited by guarantee or by shares) and Charitable Incorporated Organisations (CIO):
- Holders of loans made to the charity, whether formal or informal, including interest free loans
- Shareholders, or anyone with an interest in the profits or capital of the company (members of a company limited by guarantee, charity incorporated by Royal Charter or CIO are not considered by HMRC to hold an equity interest in the company)
Charitable trusts and charitable unincorporated associations:
- Holders of loans made to the charity, whether formal or informal, including interest free loans
- The settlor, protector (if there is one), beneficiaries entitled to mandatory distributions, beneficiaries receiving discretionary distribution (including anyone receiving a grant or distribution).
It is likely that CRS will be much more burdensome for charitable trusts and other incorporated charities as they will have to gather information on every grant recipient.
Financial institutions are required to carry out due diligence on the account holders of all financial accounts to determine if they are resident in a jurisdiction participating in CRS. However, the information is only reportable to HMRC if the recipient is tax resident outside the UK and resident in a participating jurisdiction (https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim402340). As such UK charities which are purely UK based and only make grants within the UK may not be required to make a report to HMRC. However, they will still be required to collect the following information from account holders:
- Jurisdiction of tax residence
- Entity status (only applicable to entities)
- Tax identification number(s) – only required if the recipient is non-UK resident
- Date of birth (only applicable to individuals) – only required if the recipient is non-UK resident
This information should be kept on file for six years, whilst ensuring that data protection rules are adhered to.
It will be important for financial institutions to ensure that appropriate systems are in place to collect and store this information. Whilst there is no prescribed format for the collection of the information, the account holder must sign or positively affirm that the information provided is correct.
Information to be reported
If a charity does have reportable account holders, then they must provide the following information to HMRC for the relevant calendar year by the following 31 May:
- Taxpayer identification number(s)
- Jurisdiction to which the information is reportable
- The account number
- The name and identifying number of the financial institution
- The account balance at the end of the calendar year
- Date of birth (only applicable to individuals)
- The total gross amount paid or credited to the account holder in the calendar year
Financial Institutions with reportable account holders must register for the automatic exchange of information (AEOI) by creating an online account on HMRC’s website.
HMRC can charge a penalty of £300 for a breach of an obligation under CRS (including late filing). HMRC can also charge a penalty of up to £3,000 for the provision of inaccurate information.
However, we understand, that in the early years of AEOI HMRC will be taking a “soft landing” approach. So where charities have made effort s to carry out due diligence and report accurately penalties shouldn’t be applied.
There isn’t much time left before the first reporting deadline of 31st May, therefore if you haven’t already considered whether your organisation is a financial institution you should do now.
If your charity is a financial institution you should then consider what steps need to be taken to comply with the new rules.
As you will be aware, charities can boost the value of donations by 25% by making a Gift Aid claim. Gift Aid is a system of tax relief allowing charities to reclaim the basic rate income or capital gains tax that the donor has paid.
Over the past decade the ways in which charities and their supporters raise and collect funds from donors has diversified. This is both in terms of the types of events which are held in support of charities and the method by which funds are collected (e.g. via sponsorship forms, fundraising web pages, internet giving, contactless payments).
HMRC have tried to keep up with these changes by updating legislation and their guidance notes for claiming Gift Aid. However, the rules around Gift Aid can still be quite complicated.
At a recent seminar we attended, HMRC reported that they found increasing numbers of Gift Aid donations that do not qualify. This was particularly evident by HMRC upon a review of donations made through online platforms. HMRC found many examples of “Gift Aid” donations that were not made by individuals for which a benefit was not received. Rather, one donation might have related to a bucket collection, an office dress down day, a cake sale etc. HMRC estimate that up to £1m per month was being paid out in Gift Aid when it should not have been due.
As a result of this research HMRC are seeking to encourage charities to educate their donors on the Gift Aid rules via information provided in fundraising packs and by introducing an online gift aid eligibility test.
In the past 12 months HMRC have been working closely with all of the large online platform providers around Gift Aid. You will now notice an additional step in the donation process when you make a donation through one of those websites.
HMRC are encouraging all charities to include this additional step in the online donation process. Although the wording is not prescriptive, in addition to the standard Gift Aid declaration, HMRC have requested that donors should be asked to confirm that three statements apply to the donation:
- I am donating my own money and the funds have not come from anyone else including family members or from an office or bucket collection.
- The money I am donating is not the proceeds from sales of goods or services or the sale of tickets.
- I have not received something in return for this donation such as an entry ticket to an event or a raffle ticket.
With HMRC encouraging charities to improve donor education around Gift Aid, it is a good time to review your fundraising packs (especially those contain fundraising ideas which involve non-qualifying events), sponsorship forms and online giving processes to ensure that they incorporate best practice.
By demonstrating that donors have been provided with the relevant information to make the appropriate choice around Gift Aid, this should help ensure that charity Gift Aid claims are not delayed or reduced.
Rateable values are used to calculate the Business Rates payable on properties. You may be aware that a revaluation has been performed and new rateable values came into effect on 1 April 2017. Whilst in the North East this may mean that Business Rates reduce, large rises are expected in the South East.
In addition to the revaluation, by 2019/20 the Government plans to allow Local Authorities to retain 100% of the business rates raised in their area.
Whilst the Government has committed to protecting mandatory Business Rates relief for charities, which makes up 80% of the Business Rate charge, Local Authorities will be able choose how they apply discretionary relief.
With income from Business Rates potentially reducing in the North East, it is possible that Local Authorities could become more stringent on awarding discretionary reliefs. If discretionary reliefs were to be withdrawn many charities may struggle to find the additional funding to pay the charge.
Tait Walker are Observer Members of the Charity Tax Group (CTG), a national organisation with over 500 members which makes representations to the UK Government on charity taxation issues. As each Local Authority can have its own processes around the application of Business Rates relief, the CTG are aiming to collate and share information around the application process for discretionary reliefs for each Local Authority.
If you have recently gone through the process for applying for Business Rates reliefs, please can you let us know about your experiences by emailing firstname.lastname@example.org. We will then feed this back to the CTG, with the aim of helping to create a level playing field.
Many people seek trusteeships in order to help a cause they believe in and give something back to society. Well-meaning and dedicated members of the board are vital to ensure that the objectives of the organisations are achieved.
However, a growing number of charities are becoming subject to fraud. The issue has become such a concern that the Government launched a new website to advise charities on how to stay safe.
Tait Walker’s Forensics team have assisted Trustees in a number of cases where frauds have been uncovered. In our experience, many frauds could have been prevented had simple controls been put in place. The segregation between the trustees and the staff often means that flaws in systems and controls are missed and provide an opportunity for a would-be fraudster to act.
The composition of the board is vital to ensure that a charity is run correctly. We often see that internal frauds have been committed in charities where there are no Trustees with a financial background on the Board.
Trustees are often not made aware of their wider responsibilities and their liability if things go wrong. For example, if a charity is not incorporated, then the financial responsibility of the Trustees is not limited to the charity and they can potentially become personally liable for any failings that happen when they are part of the Board.
Tait Walker Forensics will be hosting an event aimed specifically at Charity Trustees to talk about the responsibilities and risks associated with being a Trustee with a particular focus on avoiding internal fraud.
If you would like further details of this event, please contact email@example.com.