Whilst the Chancellor’s 2013 Budget speech did not contain many new measures directly aimed at charitable organisations, there were some positive announcements for the charities sector including the introduction of a new tax relief to encourage private investment in social enterprise, and a commitment that the Government will consult on proposals to make it easier for charities to claim Gift Aid in respect of digital giving. The Government will also look to improve the quality of guidance for volunteer events. It is recognised that the current guidance is confusing and has previously deterred volunteers and obstructed events which are valuable to local communities.
We have summarised below key taxation proposals which could affect charities arising from the Budget Report delivered on 20 March 2013.
Consultation will be launched regarding the ability of charities to claim Gift Aid in relation to digital giving, including options for enabling donors to complete a single Gift Aid declaration to cover all their donations through a specific channel.
It was also announced that by summer 2013 the Government will consult formally on a new social investment tax relief with a view to it being introduced in Finance Bill 2014.
It is common place for charities to own non-charitable subsidiary companies; the following announcements made in the Budget will be applicable to such companies and may therefore be of interest to charities.
The current rate of corporation tax is 24 per cent, falling to 23 per cent on 1 April 2013. From 1 April 2014 the main rate of corporation tax in the UK will be reduced to 21 per cent, and it was announced that from 1 April 2015 this will now fall to 20 per cent.
The 100 per cent first year allowance available for expenditure on cars with low carbon dioxide emissions and electrically propelled cars will be extended until 31 March 2018. In addition it was announced that the list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated during summer 2013, subject to state aids approval.
Whilst charities can generally claim charities relief in respect of SDLT on acquisitions of land/buildings which they intend to hold or use for qualifying charitable purposes, there may be circumstances where the relief will not be applicable, for example on acquisitions by non-charitable subsidiary companies. Please note however that these rules apply only to high-value residential properties, and would be applicable only where an individual residential property is being acquired. Commercial and non-residential purchases will not be impacted.
The new higher-rate SDLT charge for purchases of dwellings with a value in excess of £2 million was introduced from 21 March 2012. Where residential property over £2 million is acquired by individuals the charge is 7 per cent, whereas purchases of properties over £2 million by companies are subject to a 15 per cent charge.
Following a number of representations made by the property sector, the Government has introduced a number of reliefs from the 15 per cent charge. The reliefs will cover:
- property development, investment rental and trading businesses;
- residential properties open to the public for at least 28 days a year on a commercial basis;
- residential properties held for employee accommodation;
- residential properties owned by a charity and held for charitable purposes;
- working farmhouses;
- diplomatic properties; and
- some other publicly-owned residential properties.
These reliefs will be introduced from Royal Assent to Finance Bill 2013. Until that date the higher rate of SDLT will still apply to transactions which fall within one of the above reliefs.
A new annual charge has been introduced which is payable where residential property worth over £2 million is held by a corporate vehicle such as a company, a unit trust or a partnership with at least 1 corporate partner. The rate starts at £15,000 per annum for residential properties between £2 million and £5 million rising to a top rate of £140,000 per annum for each property with a value over £20 million. The aim is to discourage people from owning high value residential property within the UK in a corporate vehicle.
However, the above reliefs will also apply to the Annual Tax on Enveloped Dwellings, and will have immediate effect from 1 April 2013 when the charge is introduced.
The consultation in respect of the above closed on 14 March 2013. Subject to the responses, the Government plans to withdraw the exemption with effect from 1 August 2013. The effect of this will make supplies of research between two eligible bodies (e.g. two charities) subject to VAT at the standard-rate. Whilst the government is considering introducing transitional reliefs this could have an adverse impact existing research contracts (with a significant number of research programmes lasting between 3 to 7 years).
With effect from 1 August 2013, the reduce rate relief (where VAT is chargeable at 5 per cent) for the installation of energy saving materials to charitable buildings will be withdrawn. From this date, such supplies will become subject to VAT at the standard rate. This will affect installation of energy savings materials in buildings used by charities for “charitable purposes” (i.e. “non business” purposes).
The Government has announced that legislation will be introduced in Finance Bill 2014 to tax the supply of telecommunications, broadcasting and e-services to consumers, for VAT purposes, in the EU member state in which the customer belongs from 1 January 2015. This may affect charities making charges for the download of Apps to consumers in other EU member states. To prevent charities from having to register for VAT in another EU member state as a result of making these supplies, an IT system (a “mini one stop shop”), to be introduced from 1 January 2015, will give charities the option of registering for VAT in just the UK and accounting for VAT due in other Member States using a single return.
Following changes proposed to the Care and Support Bill, the Government has announced that it will introduce legislation in Finance Bill 2014 to include the Health Research Authority and Health Education England within Section 41 of the VAT Act - allowing these bodies to claim refunds of VAT for certain services. In addition following changes arising from the Health and Social Care Act 2012, the NHS Commissioning Board, Clinical Commissioning Groups, the National Institute for Health and Care Excellence and the Health and Social Care Information Centre will also be added to Section 41.
With effect from 1 April 2013, the VAT registration and deregistration thresholds will increase as follows:
- the taxable turnover threshold (which determines when a person must register for VAT) will be increased from £77,000 to £79,000;
- the deregistration threshold (which determines when a person may deregister for VAT) will be increased from £75,000 to £77,000; and
- the registration and deregistration for acquisitions of goods into the UK from other EU members states will increase from £77,000 to £79,000.
From April 2014 all UK employers (businesses and charities) will be eligible for a new £2,000 Employment Allowance. The effect of this allowance is that it will reduce the overall amount of Employer’s NIC payable to HMRC each year. Each business will be able to employ one individual on an annual salary of £22,400, or four staff on the National Minimum Wage (£12,070 per annum), without having to pay any Employer’s NIC at all.
The scheme will be administered through payroll reporting and Real Time Information and employers will be required to opt in to confirm eligibility for the allowance. It is not yet known how the new Employment Allowance will operate in relation to companies with multiple payrolls, more than one PAYE scheme reference or Group structures.
Public sector pay awards in 2015-16 will be limited to an average of up to 1 per cent.
As announced in the Government White Paper in January 2013, a single-tier state pension is to be introduced with one effect being that employees will no longer pay contracted-out rates of National Insurance Contributions (NIC) – the current rate is 10.6 per cent, with all other employees paying 12 per cent (for earnings below £40,040). The employer rate is 10.4 per cent, compared with 13.8 per cent for “contracted-in” employments.
The new pension was to be introduced in April 2017; the Chancellor announced in the Budget that this will be brought forward to April 2016. From that point, employees and employers currently paying contracted-out rates of NIC will see their NIC costs increase.
Personal allowance is to increase by £560 to £10,000 from 6 April 2014 – one year earlier than expected.
A new scheme will be introduced in autumn 2015 extending the availability to tax efficient childcare. The scheme will be available to all parents that work over 16 hours a week and earn less than £150,000 per tax year for children under 5 (phased increase to children under 12). It will be administered via an online account whereby for every 80p put in by the individual, HMRC will add a further 20p up to a maximum of £6,000 per child. Total tax relief will be available up to £1,200 per annum.
Current employer supported childcare will still be available for those businesses that operate it; however it is proposed that these arrangements will be phased out in time.
A consultation document is to follow in the spring when it should become clearer how this scheme will operate in practice, e.g. can it work in conjunction with salary sacrifice as most current childcare voucher arrangements do.
The Finance Bill 2014 will contain legislation which seeks to increase the tax free amount an employer can loan to its staff without giving rise to a benefit in kind. The current beneficial loan limit is £5,000 and it is expected that this will be doubled to £10,000 with effect from the 2014/15 tax year.
From April 2015, two new Company Car Tax bands will be introduced for Ultra Low Emission Vehicles (“ULEV”) at 0-50g/km and 51-75g/km of CO2. The appropriate percentage of the list price subject to tax for 0-50g/km vehicles will be 5 per cent in 2015/16 and 7 per cent in 2016/17. For vehicles in the 51-75g/km category the appropriate percentages will be 9 per cent in 2015/16 and 11 per cent in 2016/17.
From 6 April 2014 the fuel benefit charge multiplier will increase by reference to the Retail Prices Index for both company cars and vans.
The Government intends to create the health and work assessment and advisory service for those at danger of long-term sickness absence. It will also introduce tax relief provisions so that amounts up to a cap of £500 paid by employers on health-related interventions recommended by the service are not treated as a taxable benefit in kind. The Government will consult on implementation later in 2013.
As announced in the Autumn Statement 2012 the Government have confirmed they will amend the existing IR35 legislation, applicable to intermediaries such as personal services companies to equalise the tax and NIC treatment of office holders.
Following the publication of the “Tax and Procurement” consultation document on 14 February 2013, HMRC has now confirmed that the new rules will come into effect from 1 April 2013.
Under these new rules, tenders for contracts issued by Central Government (which would include the NHS) and Non-Departmental Public Bodies (which include, for instance, the Research Councils) would need to include a requirement for “occasions of non-compliance” to be disclosed as part of any tender submission. The purpose of this requirement is to enable Government to consider the tax compliance profile of potential suppliers as part of its procurement process. However, following the consultation, the proposed rules have been changed in a number of ways, in particular:
- A new de-minimis limit, so that only contracts over £5 million are included;
- The definition of occasions of non-compliance has been clarified, with the reference to “targeted anti-avoidance”, which was not defined, being removed;
- Only occasions of non-compliance occurring from 1 April 2013 will be considered, and is in respect of a tax return submitted after 1 October 2012, so past activities are not included.
The implications for the charities sector of these new rules are still not clear. We will be further considering the potential impact for charities and will be in touch with you again soon to follow up.