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PDF Update on Tax and Gift Aid Kate Sayer, Sayer Vincent
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PDF Update on Tax and Gift Aid Kate Sayer, Sayer Vincent

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A look at the numerous changes to the tax regime in recent months including online filing

A look at the numerous changes to the tax regime in recent months including online filing

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  • 1. Charity Finance Directors’ GroupUpdate on tax and gift aidKate Sayer12 May 2011
  • 2. Agenda• Online filing of corporation tax returns• Gift aid• Substantial donors• Tainted donations 2
  • 3. Online filing - overview• Applies to corporation tax payers • Limited companies, IPSs, Royal Charter, Act of Parliament, unincorporated associations etc. Not charitable trusts• Applies to returns for periods ending from 1 April 2010 submitted from 1 April 2011• By default must submit tax return over the internet with accounts and computations in iXBRL format• But various exceptions and exemptions• Claims, elections, statements etc must be attached as PDFs 3
  • 4. Online filing – formats required Claims, TaxCompany type Accounts elections Comps etcRegistered under Companies ActsIndustrial & Provident Society iXBRLFriendly Society iXBRL PDFRoyal Charter company PDF orAct of Parliament company iXBRLUnincorporated association 4
  • 5. Online filing – what is iXBRL?• Similar to PDF, but viewed in a web browser• Numbers, text etc are assigned tags (descriptions) so can be easily extracted by software• Tags must adhere to a specified “taxonomy”• Various different taxonomies e.g. IFRS for listed companies• For UK charities the relevant taxonomies are: • UK common data – company name, address etc • UK GAAP taxonomy - UK unlisted company • Charity SORP extension - additional tags for UK charities • HMRC computational taxonomy – for tagging computations 5
  • 6. Online filing – tagging• Must tag every item in accounts and computations for which there is a tag• But up to to April 2013, just have to tag the “minimum tagging list” Taxonomy Full tags Minimum list UK common data module 1,028 1,028 Standard UK GAAP 5,292 1,253 Charities extension 334 334 CT computations 4,164 1,207 6
  • 7. Online filing – transitional policy• In Feb 2011 HMRC announced: • HMRC software will only reject iXBRL accounts and computations if “gateway validation tags” missing • If pass gateway validation, HMRC will only reject where HMRC believes there has not been a reasonable attempt made to tag a part of the submission • And HMRC will discuss this with you first 7
  • 8. Online filing – HMRC product• HMRC’s “free online filing software”• Can also use to send accounts to Companies House• Downloadable PDF. Fill in and send back to HMRC. Can attach documents in iXBRL or PDFSection RestrictionsCT600 Short format only, but includes CT600eAccounts Standard trading company templatetemplate Can only use if turnover < £6.5m, no fixed asset investments, no gift aid, no prior year adjustments etcComputations Only cover trading income, bank interest, trade lossesAttachments Can attach iXBRL or PDF 8
  • 9. Online filing – small charities• HMRC accounts template not suitable for small charities• HMRC will provide an accounts template for small charities, but until then small charities can attach accounts as PDF • Small = group income < £6.5m • Include grants and donations• Non-small charities can still use the CT600 and computation parts online • Just have to attach accounts in iXBRL (Ltd Co, IPS) or PDF (Royal Charter, Uninc Assoc) as required 9
  • 10. Online filing - summary Small Non-small charity Trading Co charityCT600, Use HMRC download if suitable, otherwise use HMRCCT600e online form or tax software iXBRL - Ltd Co or IPSAccounts PDF PDF - Royal Charter, Uninc HMRC Assoc template if suitable, otherwise Not usually necessary, if required use iXBRLComputations HMRC template if suitable, otherwise iXBRL 10
  • 11. Gift aid – transitional reliefReminder:•Ended on donations made after 5 April 2011•Must be claimed within 2 years: • From end of accounting year of donation for charitable companies • From end of tax year of donation for charitable trusts 11
  • 12. Gift aid – annual benefit limitFrom April 2011•Annual donor benefit limit will increase from £500 to£2,500•But 5% limit on donations above £1,000 will remain•E.g. gift £50,000 – can now give benefit of £2,500,previously limit was £500 12
  • 13. Gift aid – small donations schemeFrom April 2013:•Will be able to claim gift aid on up to £5,000 worth of smalldonations (up to £10 each) without gift aid declarations•But must : • Have been registered with HMRC for gift aid for at least three years • Operating gift aid successfully throughout that time and • Have a good tax compliance record 13
  • 14. Gift aid – online filing• In 2012/13 HMRC will introduce a new system to register online for gift aid and make online gift aid claims• HMRC will publish intelligent R68 forms to submit online• HMRC will also work with the charity sector to develop a supporting electronic gift aid database for gift aid declarations• But to pay for will remove SA Donate 14
  • 15. Other budget changes• From April 2012, reduced rate of inheritance tax (IHT) of 36% if give at least 10% of estate to charity • Will also have to apply to legacies to any EU, Norway or Iceland charity• Government to explore how to increase the take up of payroll giving• New guidance will be published to help clarify what constitutes a gift aid benefit 15
  • 16. Substantial donor rules• Introduced in 2006• SD = person who makes relievable gifts to a charity of £25k or more in 12 months or £150k or more in six years• Transactions between charity and SD are non-charitable expenditure for the charity if various conditions met• Widely criticised – penalise innocent transactions• E.g. if charity employs someone connected to a SD, all salary payments are non-charitable expenditure• To be phased out from April 2011 and replaced with new “tainted donation” rules 16
  • 17. Substantial donors – phasing out• No donations after 1 April 2011 count towards substantial donor thresholds i.e. no new SDs can be created from 1 April• From April 2011 a transaction with an existing SD is only caught if it is tainted• Means reasonable to assume the transaction was not entered into independently of a tainted donation• SD legislation is repealed from 1 April 2013, except for contracts entered into before 1 April 2013• But if contract is varied after then, SD rules cease to apply• E.g. if employ a person connected to a SD, vary the terms on or after 1 April 2013 to stop the SD rules applying 17
  • 18. Tainted donations - outline• Applies to tax relievable donations made from April 2011 • Gift aid (individual & company); payroll giving; gifts of qualifying investments and land; and gifts of chargeable assets, trading stock, plant and machinery• When a donation is tainted it loses its tax relief for the donor• A gift aid claim by the charity is not blocked, but, any gift aid claimable (even if not claimed) must be paid to HMRC by the donor or by any other “potentially advantaged person”• The charity is also jointly and severally liable for the gift aid payment if it was a party to and aware of the tainted arrangement at the time it was entered into 18
  • 19. Tainted donation - meaningLinked person = donor or person connected to donorArrangement = any scheme, arrangement or understanding of any kind, whetheror not legally enforceable, involving one or more transactionsTwo conditions must both be met:A.Donation is part of an arrangement involving a linkedperson and reasonable to assume the donation would nothave been made independently of the arrangementB.One of the main purposes of the arrangement for thelinked person is to gain a financial advantage for a linkedperson from the charity or a connected charity • A donation from a wholly owned charity subsidiary cannot be tainted unless the subsidiary has taken over the business of a linked person • A donation from a housing association in the same group cannot be tainted 19
  • 20. Tainted donations – financial advantage• Financial advantage includes where the arrangement involves a transaction which is: • More beneficial for a linked person than arms length or • Not of a kind which a person dealing at arm’s length and in place of the charity might reasonably be expected to make• But ignore: • Benefit allowed by the specific conditions for tax relief (eg: within gift aid donor benefit limits) • Where the advantage is applied for charitable purposes only 20
  • 21. Tainted donations – risk for charity1) Charity receives a donation on which gift aid can be claimed2) Charity gives something back and that giving back is at undervalue3) 1) and 2) are part of an arrangement to which the charity is a party4) Charity was aware (when it entered into the arrangement) the purpose for the linked person in entering into the arrangement was to obtain a financial advantage from the charity5) Then charity can be held liable for paying the gift aid claimable to HMRC – even if it did not claim it 21
  • 22. Tainted donations – HMRC example• Mr A is a trustee of a charity and also controls company D which runs a leisure centre used by the charity. D wishes to refurbish the leisure centre• Mr A makes gift aid donation to the charity of £100k• Charity loans £125k to D interest free• Gift aid donation is tainted (condition A likely to be met, condition B definitely met)Comment: • The beneficial loan is in consequence of the gift and received by a person connected to the donor so gift aid is blocked by s417 ITA 2007 anyway. • Even if not, the loan is non-qualifying for the charity, so non- charitable expenditure. 22