Tax Update and Current Hot Topics Andrea Sofield VAT Partner Helen Riley Corporate Tax DirectorCFG Grant Thornton.pptx
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 beundertaken?
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 - remindersand 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 - remindersand issues …When accounting profits are less than taxable profits… • may not be able to eliminate tax liability by gift aidPossible 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 - Possibleapplications 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 - HMRCs will accept that all services received by amember from a CSG may be treated as directlynecessary and, therefore, VAT exempt if more than85% of the members activities by value are exempt ornon-business (or if the member restricts more than85% of VAT incurred).
Cost Sharing Exemption - Conditions• Services supplied at cost• Distortion of Competition - HMRC consider that the provision of servicesby a CSG on a cost and VAT free basis doesnot 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 donordeclarations• 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 donors name - as a minimum the initial of the first name and the last name in full• the donors 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 donors tax relief• No (direct) impact on donee charitys 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 beingintroduced…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