Balancing the books
Ernese Skinner considers what Alistair Darling has done for the charity sector in the latest Budget...
The big news for the voluntary sector in Alistair Darling’s first Budget as chancellor was the announcement of three years of transitional relief for Gift Aid claims worth £300m to the sector (see News Review, Government responds positively on Gift Aid consultation). This means that claims can continue to be maintained from 6 April at a transitional rate of 22 per cent for the next three years. However, HMRC has confirmed that charities will have to start claiming Gift Aid at 25p in the pound from 6 April, rather than the current level of 28p. The government will set up a separate top-up fund to meet its commitment that charities will be able to claim at 28p until 2011.
This announcement came as part of the government response to the Gift Aid consultation that was jointly run by the Office of the Third Sector and the Treasury last year. In response to the government consultation, CFDG and other umbrella bodies called for an accounts-based method that allows a charity to base Gift Aid on total voluntary income as recorded in the independently examined or audited accounts. While the government has not yet agreed to implement this proposal, we hope that the three-year transitional relief period will give sufficient time for the sector to work with the government to develop these and other proposals and increase take-up of Gift Aid.
Simplification of Gift Aid
Another change contained in the government’s response is a commitment to simplify the Gift Aid audit process for charities. Charities can now go back and repair errors at audit before HMRC extrapolates the error rate across the Gift Aid claim. In addition, the government set a deminimis error level of 4 per cent for all charities. However, charities can still have Gift Aid recovered by HMRC if they have an error rate of less than 4 per cent. That said, charities will only have money recovered in the year in question and earlier years if the error rate is over 4 per cent and involves more than £500.
From 12 March 2008, an adjustment to the Gift Aid claims process will allow charities to aggregate donations of under £10 in claims of up to a total of £500. Charities will still need to obtain Gift Aid declarations for these donations but will no longer need to list individual donations on the claim form. In addition, by this summer HMRC will have developed a framework to set out the option to destroy old Gift Aid declarations after six years, provided a database record is retained.
Gift Aid awareness and guidance
The government has also addressed calls for more guidance and awareness by launching a Gift Aid web information service together with a detailed programme of upgrades to HMRC guidance. A toolkit that will draw together all the tools and guidance needed to run a successful Gift Aid scheme is also underway.
For smaller charities, there will be a Tax Effective Giving Initiative to meet the needs identified by the Gift Aid consultation. It will be delivered through the Institute of Fundraising and will provide charities with access to training, resources and advice on operating tax-efficient giving schemes. In addition there will be a Small Charities Training Programme focusing on charities with an annual income of less than £1m and the development of a new online Gift Aid mentoring forum for charities.
VAT issues
The government has announced that as of 1 April 2009 the current arrangements which allow businesses to exclude wages from the supplies they make, and to account for VAT solely on their margin will be withdrawn. This is bad news for charities as they are unable to fully recover the VAT charged to them. We have previously highlighted to HMRC the cost implications that the removal of this would have. One of our members indicated that it could face an annual VAT bill of £300,000.
The outcome of the joined VAT cases of Michael Fleming and Condé Nast Publications Ltd was that HMRC must remove the three-year time limit for VAT claims for much of the period since 1973. The Budget papers clarify the position by stating that the three-year limit has not completely gone and recent years will still be subject to a time limit. Claims for unclaimed input tax can now be made for VAT periods between April 1973 and 30 April 1997. Claims for overpaid output tax will be allowed for VAT periods between 1 April 1973 and 4 December 1996. CFDG advises anyone seeking to claim to take professional advice.
Author: Ernese Skinner
Ernese Skinner is policy and campaings manager at CFDG. She has moved into the charity sector from the Office of Government Commerce, an independent office of HM Treasury.
There are no comments on this article. Be the first to comment.