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Charities to get sympathy treatment?

Posted: March 12, 2015

Most readers will be aware that charitable organisations are able to receive fairly sympathetic treatment from the tax authorities, including any activities where VAT might be applicable. Examples of this include a VAT exemption for fundraising events, and zero-rating for advertising costs and sales of donated goods. This sympathetic treatment was extended in the Autumn Statement of 2014 when George Osborne allowed hospices, air ambulances and search and rescue charities to be placed on a ‘level playing field’ with other government bodies providing the same services. This change means that the charities will be allowed to recover VAT incurred on expenditure in the same way as those parallel bodies.

In a recent letter to Mr Osborne from 6 of the main charity organisations the authors request a further extension of this ability to recover VAT on costs. In their estimation this additional measure could mean an extra £1.5bn per year for charities to recover. They imply that there is already existing legislation – confirmed by the European Commission – that would allow this extension to be applied.

In addition to the refund of VAT the authors are requesting a review of the existing exemption for VAT on ‘shared services’, stating that the mechanism for applying this exemption is too complex for most charities to understand and put in place.

Another complex and burdensome measure – in their opinion – is the Gift Aid Small Donations Scheme. This allows charities to claim Gift Aid for amounts less than £20 without having a full Gift Aid declaration completed. They have asked that the proposed review of the scheme, currently set for 2016, be brought forward. There is also a request that the government carries out a review of Corporate Gift Aid.

All in all the proposals, if adopted by the government, would result in substantial increases in the amounts of VAT and other taxes that charities are able to recover or save.

Post-Budget Update

Following the Budget announcements it seems that George did manage to read his letters before compiling his list of forecasts and new measures!

Included within the announcement was an extension of the previously-announced VAT reliefs for hospices, air ambulances and search and rescue charities to include those charities involved in transportation of blood and vital medical supplies. These so-called ‘blood bike’ charities will now be able to recover VAT that was previously lost on expenditure for their ‘non-business’ activities. The proposed new legislation will provide a definition for those ‘medical courier charities’ included within the new relief.

In addition the Chancellor increased the maximum amount allowed for annual donations under the Gift Aid Small Donations Scheme (GASDS). This means that many charities and Community Amateur Sports Clubs could top-up their Gift Aid payments by up to £2,000 per year from 1 April 2016.

So some welcome good news for charities in these difficult times!

Greg Mayne - Charities to get sympathy treatment?For more information on this, or any other VAT query, please contact Greg Mayne (pictured) on 01227 454627, or email VAT@burgesshodgson.co.uk