CTG is proposing the following initiatives in respect of VAT:
- the replacement of exemptions under Article 13 of the sixth Directive with reduced rate or zero-rated supplies;
- a mechanism for the recovery of input tax suffered on charitable activities which are outside the scope of VAT; and
- an expansion of those supplies qualifying for reduced rates in accordance with Annex H of the sixth Directive.
Change of use provisions for charitable buildings
If a building that has qualified for zero-rating ceases to qualify at any time during the ten year period from completion, then a self supply and associated VAT charge crystallises equal to the VAT that would have been payable on the original construction had it not qualified for zero-rating. CTG has proposed changes to the legislation that would make the rules fairer by taking into account the length of time the building has been used for charitable purposes.
Zero-rating on the construction of annexes for relevant charitable purposes
The underlying principle of the legislation (Group 5, Schedule 8, VATA 1994) is that charities should not suffer VAT on new buildings, or parts of buildings, constructed for relevant charitable use (i.e. non-business use). Unfortunately because of the way the legislation has evolved, any additions to an existing building (an annexe) do not enjoy the same status as a totally new building. Relatively minor changes in the legislation could remove this anomaly.
Zero-rating on collection sacks
Collection boxes and receptacles used for collecting donations of money are zero-rated under an Extra Statutory Concession; however, there is no relief for collection sacks or other such receptacles used for the collection of donated goods.
VAT on Agency Staff
New regulations to be introduced by the DTI will, we suspect, outlaw the ability of agencies to charge VAT only on their administration fees, and not on the labour costs of staff in accordance with the ruling in the case of C&E Commissioners v. Reed Personnel Services Ltd.
We believe that the rules on charity trading should be relaxed to allow charities to conduct trading activities appropriate to their objectives, including fund raising activities, subject to appropriate competition controls. The tax relief on trading (section 505, Income and Corporation Taxes Act) should also be extended beyond primary purpose trading.
Sponsorship income should remain outside the scope of VAT, where the only benefit the charity gives the sponsor is the passive use of its name and logo in publicity.
Gifts of shares and other assets
The new tax relief allowing donors to claim a deduction against their taxable income for the gift of shares and securities to a charity should be extended to gifts of property and other assets.
Capital Gains on offshore investments
A charity with interests of more than 10% in a UK resident close company that has a foreign subsidiary holding investments or other non-trading assets could potentially have gains attributed to it that would give rise to a tax liability. Charities should enjoy the same exemption as pension funds.
Gift Aid and Payroll Giving
We urge the Government to extend the 10% payroll supplement beyond April 2003 and also to add a similar supplement to gifts made under Gift Aid.
As VAT is a European tax, any changes to European VAT law could have a significant effect on charities in the UK. Since the early 1990s, the European Commission has been making proposals to harmonise tax rates across the EU. These proposals have included abolishing the zero-rates that currently exist in the UK - hence the importance of securing the Government's commitment to protect them.
CTG worked with charities in other EU Member States to set up the European Charities' Committee on VAT (ECCVAT). Regular monitoring of European issues and contact with European officials helps CTG to influence decision-making when vital issues affecting charities are being discussed. ECCVAT has also secured considerable support in the European Parliament for the sector and several influential resolutions on charities and VAT have been passed by the Parliament's Economic and Monetary Affairs Committee.