CFG Grant Thornton.pptx

Tax Update and Current Hot Topics

Andrea SofieldVAT Partner

Helen RileyCorporate Tax Director

Agenda• Grants• VAT recoveries• When to use a trading subsidiary• Cost sharing exemption• Listed Buildings• Gift Aid• Other budget changes

Grants

• Is it a grant or is it a contract?

- current hot topic

- are the funds contributed to your project?

- did the funder ask for a project to be undertaken?

VAT Recoveries

• Business/Non Business and Partial Exemption

- What method should I use? - Do I have to agree the method(s) with HMRC?

When to use a Trading Subsidiary - Is the activity primary purpose?

- Change the liability of supplies

- Maximise VAT recovery

- Re-charges

Using trading subsidiaries - reminders and issues …• Investments (equity and loans) in trading

subsidiaries must meet "qualifying investment" test - failure means taxable income equal to investment

- no prior clearance available

- important to document rationale for commercial decision

Using trading subsidiaries - reminders and issues …When accounting profits are less than taxable profits…

• may not be able to eliminate tax liability by gift aid

Possible strategies:

• avoid non deductible expenditure in subsidiary

• introduce source of non taxable income - eg UK dividends

• increase distributable reserves by capital reduction scheme

Trading Subsidiaries

• Possible strategies (contd)- do not use subs with accumulated losses for new

profitable activities - may not be able to use losses

- if more than one subsidiary, review group relief strategy - if appropriate, displace gift aid to future year

Cost Sharing Exemption

• Usable by a wide range of organisations - need to meet Conditions.

• Straightforward to operate, minimising compliance and administrative burdens.

• Does not create opportunities for abuse and avoidance.

• Should not be an alternative to outsourcing or Private Sector partnering.

Cost Sharing Exemption - Possible applications

CSE - where might it be beneficial?

Any service that involves a significant staff cost, for example:

• Repairs & Maintenance• Grant application• Finance• IT• Human Resources

Cost Sharing Exemption - Conditions• Independent Group of persons• Members must make exempt / non-

business supplies• Directly necessary services - HMRC's will accept that all services received by a member from a CSG may be treated as directly necessary and, therefore, VAT exempt if more than 85% of the member's activities by value are exempt or non-business (or if the member restricts more than 85% of VAT incurred).

Cost Sharing Exemption - Conditions

• Services supplied at cost• Distortion of Competition - HMRC consider that the provision of services by a CSG on a cost and VAT free basis does not in itself result in a distortion of competition.

Listed Buildings

• Approved alterations• What can still be zero-rated• Transitional Provisions

Gift Aid - new guidance on donor declarations• Updated guidance from HMRC on gift aid

declaration wording - new model declarations issued February 2012 available on HMRC website

• Use of model declaration ensures HMRC will accept validity

• Old style declarations will be accepted until December 2012

Gift Aid donor declarations- what must be included (1)

• the name of the charity• the donor's name - as a minimum the

initial of the first name and the last name in full

• the donor's home address - as a minimum the house number/name and postcode

• whether the declaration covers only the present donation or past and/or future donations as well

Gift Aid Donor declarations

- what must be included (2)• a statement or verbal confirmation by the

donor that Gift Aid is to apply - on a written form or on a website, a tick box is sufficient

• confirmation the donor has been given an explanation that they must pay at least as much UK income tax and/or capital gains tax (for the year of the donation) as the amount that will be claimed by the charity or CASC and any other charities and CASCs they donate to (model also specifies that tax does not include eg VAT and council tax).

Budget proposals to limit gift aid relief• Caps relief at higher of 25% of

income/£50,000• Only applies to donor's tax relief• No (direct) impact on donee

charity's position • BUT widespread concern on indirect

impact - how will it affect donors' behaviour?

• Under consultation….

Gift Aid Small Donations Scheme• Announced in Budget 2011• Consultation document currently

available• Consultation closes 25 May 2012• to apply from 6 April 2013• allows charities to reclaim Gift Aid

equivalent on small donations (up to £20) totalling up to £5,000 without formal declarations etc

• Must have good Gift Aid compliance record

Gift Aid - in year claims

• Finance Bill 2012 contains provisions to allow charitable companies and CASCs to make in year claims for Gift Aid repayments (first announced in 2010, and previously a concession)

Other tax measures being introduced…from Budget 2011

• upper limit on benefits that charities may provide to Gift Aid donors increased from £500 to £2,500

• for deaths occurring from 6 April 2012, a reduced rate of inheritance tax (IHT) to 36% will apply where 10% or more of a deceased‘s net estate is left to charity; and

• a scheme to provide a tax reduction to people who, during their lifetime, donate pre-eminent objects to the nation included in 2012 Finance Bill