Charity tax measures included in draft finance bill
December 2011
The draft Finance Bill 2012 has been published and includes a number of charity tax measures.
The following summary has been put together by Charity Tax Group (CTG) which has persuaded successive governments to introduce a range of tax reliefs and has also campaigned successfully to protect existing concessions, saving charities a considerable amount of money in the process.
Cost-sharing exemption
After seven years campaigning for its introduction and following detailed negotiations with HM Treasury and HMRC, CTG is pleased to welcome the planned implementation of the cost-sharing exemption in the UK.
The government today outlined the legislation that will be introduced in Finance Bill 2012 to implement Article 132(1)(f) of the Principal VAT Directive (PVD) in the UK. This legislation has the potential to remove a significant VAT barrier for UK charities which try to improve their efficiency and lower costs by sharing services.
The introduction of the exemption is a key success; the challenge now is to ensure that it is implemented in a way that is beneficial to the sector. The Charity Tax Group lobbied hard for the relaxation of the independence condition, and proposed alternative solutions to HMRC’s insistence on the need to create an independent structure through which services can be shared. The draft legislation makes clear that “to take advantage of the exemption businesses and organisations are expected to form new cost sharing vehicles” but it unclear what form such a vehicle should take. The government estimates that the average annual additional administrative costs will be in the range of £350,000 to £550,000.
CTG is seeking clarification from HMRC and HM Treasury to determine the form the cost-sharing vehicle will be required to take and the definition of independent to be taken. CTG will continue to work closely with officials and sector colleagues to ensure the guidance makes implementation of exemption accessible for as many charities as possible. If there is not sufficient flexibility in the legislation and through the guidance many charities will find the additional administrative costs of an independent cost-sharing vehicle as prohibitive as the existing VAT barriers.
Gifts of Art
As expected, legislation will be introduced in Finance Bill 2012 so that objects may be loaned or given to appropriate institutions including certain charities and accredited museums for safe keeping and to provide public access. In return, donors will receive a reduction in their UK tax liability based on a percentage of the value of the object they are donating. The aim of this scheme is to stimulate lifetime giving by encouraging taxpayers to donate pre-eminent objects, or collections of objects, to the nation.
While CTG welcomes this new relief and the government’s commitment to promoting philanthropy through the tax system it remains to be seen if the annual limits will be high enough to incentivise new donors.
IHT relief
As expected, legislation will be introduced in Finance Bill 2012, to provide for a reduction in the rate of IHT from 40 per cent to 36 per cent where 10 per cent or more of a deceased person's net estate (after deducting IHT exemptions, reliefs and the nil-rate band) is left to charity. The measure will apply to deaths on or after 6 April 2012.
CTG welcomes the attempt to increase charitable giving and supports the Legacy10 campaign to promote this relief. However, CTG recognises that IHT relief will only be available to the largest earners. This new incentive will be an event greater success if it is used as a vehicle to promote wider legacy giving.
Other things to note
In-year repayments of tax to charities
This measure puts on a statutory footing the practice by certain charities of making claims for repayment of tax outside a tax return (excluding Gift Aid). HMRC makes certain repayments of tax to charitable companies and certain charitable trusts that make a claim to repayment of tax outside a tax return (in-year claims) which should, in strict law, be claimed in a tax return.
The measure was announced at Budget 2011. It will retain the effect of the existing concession. CTG welcomes the protection of this concession as part of the wider review of ESCs.
SA Donate scheme removed
As expected from 6 April 2012, the “SA Donate” scheme – which enables an individual, who makes a self-assessment return, to direct HMRC to make any repayment of tax due for the tax year to a charity – will be removed.
http://www.hm-treasury.gov.uk/finance_bill_2012_consultation.htm
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