CTG press release: 22/03/06
Mixed Feelings on Budget 2006
The Charities' Tax Reform Group (CTRG), the main representative body dealing with charity taxation, is hugely disappointed that, yet again, the Chancellor has failed to tackle the burden of taxation on charities in his latest Budget Statement. The sector has put forward a range of proposals that would have addressed the problem which have not been introduced in the Budget.
There was some good news for the sector. The establishment of an Office of Charity and Third Sector Finance and the review of the role of the third sector in social and economic regeneration was very warmly welcomed by CTRG. “Anything which looks at the whole spectrum of tax and fiscal policy as it affects charities can only be helpful to the sector” said CTRG Chairman, Nick Kavanagh.
CTRG also strongly welcomes the introduction of measures to prevent the exploitation of tax reliefs for charities by substantial donors for their own benefit. CTRG will be scrutinising the detailed legislation in the Finance Bill and working closely with officials in HMRC to ensure that charities are not caught innocently by these provisions.
The Group also welcomes proposed legislation to confirm that tax relief will still apply for charities where only part of a trade is carried out for a primary purpose, or where a trade is partly (but not mainly) carried out by the beneficiaries of a charity. Relief will be available on the profits that can reasonably be attributed to the part of the trade that is carried out for a primary purpose, or that is carried out by the beneficiaries of the charity.
“For us, the VAT problem was brought sharply into focus by realising that total VAT relief for charities would cost less than 6% of the value of the VAT refunds given to local authorities and other bodies (such as the BBC and ITN)” said Nick Kavanagh. “To learn that the refunds to local authorities are worth over £7.55 billion is a considerable shock to us. We know that the Chancellor wants the sector to be more engaged in service delivery but the sector will never be able to play its full role in the delivery of public services until this anomaly whereby charities pay over £400 million a year in VAT they cannot recover and local authorities and other bodies do not is removed”.
The Group is also concerned at the proposals on establishing partial exemption methods. This could result in charities that are not professionally advised having to pay back VAT that has been reclaimed over the previous three years where HMRC decides that the method used has not been “fair and reasonable”. “We are worried that a charity which has done its best to calculate a fair apportionment may be told it has got things wrong and overclaimed VAT on purchases which must be repaid. VAT for charities is already a minefield – this could make matters worse.”
There was some good news for the sector. The establishment of an Office of Charity and Third Sector Finance and the review of the role of the third sector in social and economic regeneration was very warmly welcomed by CTRG. “Anything which looks at the whole spectrum of tax and fiscal policy as it affects charities can only be helpful to the sector” said CTRG Chairman, Nick Kavanagh.
CTRG also strongly welcomes the introduction of measures to prevent the exploitation of tax reliefs for charities by substantial donors for their own benefit. CTRG will be scrutinising the detailed legislation in the Finance Bill and working closely with officials in HMRC to ensure that charities are not caught innocently by these provisions.
The Group also welcomes proposed legislation to confirm that tax relief will still apply for charities where only part of a trade is carried out for a primary purpose, or where a trade is partly (but not mainly) carried out by the beneficiaries of a charity. Relief will be available on the profits that can reasonably be attributed to the part of the trade that is carried out for a primary purpose, or that is carried out by the beneficiaries of the charity.
“For us, the VAT problem was brought sharply into focus by realising that total VAT relief for charities would cost less than 6% of the value of the VAT refunds given to local authorities and other bodies (such as the BBC and ITN)” said Nick Kavanagh. “To learn that the refunds to local authorities are worth over £7.55 billion is a considerable shock to us. We know that the Chancellor wants the sector to be more engaged in service delivery but the sector will never be able to play its full role in the delivery of public services until this anomaly whereby charities pay over £400 million a year in VAT they cannot recover and local authorities and other bodies do not is removed”.
The Group is also concerned at the proposals on establishing partial exemption methods. This could result in charities that are not professionally advised having to pay back VAT that has been reclaimed over the previous three years where HMRC decides that the method used has not been “fair and reasonable”. “We are worried that a charity which has done its best to calculate a fair apportionment may be told it has got things wrong and overclaimed VAT on purchases which must be repaid. VAT for charities is already a minefield – this could make matters worse.”