Mixed tidings from the Pre-Budget report
January 2009
Alistair Darling’s PreBudget Report (24 November 2008) outlined a number of measures with specific impacts on the voluntary sector
and, encouragingly, paid tribute to the sector’s growing importance to the economy and society as well as acknowledging the rising levels of demand for its services.
Key measures are:
- VAT. The standard rate was reduced from 17.5 per cent to 15 per cent for 13 months with effect from 1 December 2008. To the extent that this cut is passed on to consumers, charities will benefit, as they incur substantial amounts of irrecoverable VAT.
- Increase in income tax for high earners. The VAT cut is to be paid for partly by an increase in income tax with effect from 6 April 2011. People with taxable income over £150,000 will pay tax on the excess at 45 per cent and their tax relief on charitable donations will rise correspondingly. It is possible that donors may choose to delay donations until after 5 April 2011, in order to maximise their tax relief. Charities should make sure they talk to their donors, as a donor may be able to provide more immediate funds by way of a loan, for instance, followed by a repayment and then a formal donation when the tax rate is higher.
- National Insurance contributions increase. Both employers and employees will see national insurance increase by 0.5 per cent with effect from 6 April 2011. This will increase employment costs for charities.
- Corporation tax. The planned increase for the small companies’ rate from 21 per cent to 22 per cent from 1 April 2009 has been deferred for another year until 1 April 2010. This will provide a small benefit to charities or trading subsidiaries that do have a tax liability, as they are likely to pay tax at the lower rate.
- Business Payment Support Service. HMRC has introduced a new tax deferral scheme to help businesses with temporary cashflow difficulties. Arrangements will be made on a case-by-case basis. A charity that may need to delay tax payments should contact the Business Payment Support Line on 0845 302 1435. In most cases, we are told, a decision will be given in about 10 minutes. Interest will continue to run at the normal rate for overdue tax (currently 5.5 per cent for most taxes), but there will be no additional late payment surcharges.
- Consultations – Gift Aid and substantial donors. The Report states that the Government is ‘considering carefully’ the responses to the recent consultation on the anti-avoidance rules around substantial donors to charity, and will give its detailed response early next year (presumably in time for legislation to be introduced in the 2009 Finance Act). The Government also continues to explore some of the more complex suggestions arising from the 2007 Gift Aid consultation.
Anne Wilson, charity tax director with Horwath Clark Whitehill, told Caritas: ‘It is a shame that the Government did not take this opportunity to remove the onerous substantial donor rules from the statute book. We are now waiting for changes to be announced in the 2009 Budget, when we hope there will be good news for charities.’
Rob Warne, a partner at the same firm, observed that the VAT rate cut ‘will save charities approximately £70m in the year while it is in force’. He went on to explain: ‘There are possible opportunities to recover 2.5 per cent VAT on single-service supplies which are due to finish after 1 December 2008 where they have been invoiced “on account” for the services prior to that date at 17.5 per cent. This amendment would obviously be subject to the three-year cap and would be relevant on single contracts, such as construction services that have yet to be completed at 1 December 2008.’
However, the removal of the staff hire concession is due to come in at the start of April 2009. ‘VAT will become due on the entire value of the temporary staff charge where at present the VAT is normally only due on the agency’s commission. For charities that employ a lot of agency staff this will have a significant financial impact where their ability to recover VAT is restricted,’ he added.
The Pre-Budget report is available from:
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