In this blog series, Catriona Finnie, charity tax expert at Chiene + Tait outlines the key findings of the Charity Tax Commission report into the current charity tax system and outlines how the recommendations could impact charities in the future.
In this second part of her series, Catriona outlines the proposed changes to VAT and long term reforms under consideration.
Blog 2 – VAT and Long Term Reforms
- The Commission recommended that a review is undertaken of the rules relating to irrecoverable VAT on charities that share their facilities, equipment or buildings with other entities, including a review of the relevant charitable purpose rules, which will be of particular benefit to research institutions.
- Public bodies should be required to confirm the VAT status of all funding from them (by reference to guidance, which should be written in conjunction with the charitable sector). This will make it easier for charities of all sizes to access these funding arrangements as they would no longer have to incur expensive fees in order to establish the VAT treatment of arrangements.
- A review of the VAT treatment of online advertising should also be considered, currently it is taxed differently from printed advertising. The Commission recommended that online and print advertising should have the same treatment, especially given the ongoing decline in print advertising.
Long Term Reforms
In addition to highlighting short term improvements, the Commission also looked at what could be done in the long term to ensure that the charity tax system is fit for purpose in the future. These recommendations are:
- Consider whether the current tax system adequately supports new models for delivering public benefit, such as social enterprise organisations.
- Consider whether tax breaks should be given to organisations that attract volunteers.
- Ensure Gift Aid is compatible with the digital world.
- The report noted that evidence suggested business rates relief provided only limited support to the smallest charities and questioned whether a property-based relief was appropriate, given the increasing online presence of most organisations and their decreasing physical presence in the high street. Should business rates relief be withdrawn, there is the potential to produce a new relief or extend existing reliefs. Note that the report did not recommend the scrapping of business rates relief.
- Data on VAT reliefs and their impact on the charitable sector were in urgent need. It was noted in the report that no figures for this were known and estimates only were produced.
- If VAT is found to be a net cost for charities, the Government should consider exempting charities from VAT altogether. Conversely, if VAT is found to be a net benefit, existing VAT rules should be examined to ensure they decrease unnecessary administrative burdens for charities and remove any uncertainties in the treatment of certain items (such as funding agreements).
- More research was also recommended in Gift Aid area in general. The report noted some alternatives to the current system which may provide more benefit to charities.
If you have a query about charity taxes, please contact Catriona at firstname.lastname@example.org or call 0131 558 5800.