Curving desert road

A Budget reducing administration burden on charities

Pesh Framjee, Partner, Global Head of Non Profits
Curving desert road
The Budget had very little direct impact on the charity sector. However, there are measures proposed to reduce the administrative burden on charities as well as changes to VAT group rules which will be welcomed by many.

Increase of upper limit on non-charitable trading activities

From April 2019, charities will be able to earn profits from non-charitable trading without paying income or Corporation Tax, so long as the turnover is no more than £80,000. The current upper limit is £50,000. Currently there is no Corporation Tax (for companies) or income tax (for Trusts) on trading profits where the turnover does not exceed certain limits. For very small charities the upper limit is £5,000 per year. From April 2019 this will increase to £8,000. For larger charities the limit is 25% of their total income up to a maximum of £50,000. The upper limit will increase to £80,000 from April 2019. The limit of £50,000 was set in 2000 and has not increased since then. The charity sector has long stated that it was too low and ideally should be doubled, or at least increased for inflation.

Wider consideration still needed

While this is a welcomed measure to reduce any bureaucracy, it is important that wider considerations are taken into account when deciding whether a trading activity should be passed through a separate entity, including whether it would be better to ring-fence any risk away from the charity. There may also be considerations with regard to VAT.

Retail Gift Aid Scheme letters

From April 2019, the requirements for issuing Gift Aid letters to donors under the Retail Gift Aid Scheme will be simplified. Charities cannot claim Gift Aid on donated goods, but they can claim Gift Aid if they sell goods on behalf of a donor who then donates the sale proceeds to charity. This is the basis for the Retail Gift Aid Scheme. It allows charities which sell donated goods to claim Gift Aid on a large number of donations. Unfortunately the paperwork requirements are onerous. Charities have to be legally appointed as agents, and they have to demonstrate that the donors are genuinely able to take the sale proceeds if they wish. They also have to write to each donor on an annual basis to tell them how much Gift Aid they have claimed, so that if they wish, the donors can put the donations on their tax returns. As donated goods are in general a large number of low value items, this means that charities are having to issue letters in order to claim very small amounts of Gift Aid. From April 2019, charities will only have to issue a letter every three years where the annual sale proceeds for a donor are £20 or less.

A welcomed reduction in administration

Charities have been asking for a practical solution to this problem for some time, and although a letter every three years will only reduce administration rather than eliminate it, the change is still welcome.

Gift Aid Small Donations Scheme (GASDS)

From April 2019 the limit for individual donations under the GASDS scheme will be increased from £20 to £30. In recent years charities have been able to claim a Gift Aid style tax refund of 25% on cash donations up to £20, subject to overall annual limits on total donations. The £20 limit was set in order to exclude larger donations which ideally should be eligible for Gift Aid.

Upper limit now rectified

From 6 April 2017 charities have been able to claim GASDS not only on notes and coins, but also on contactless payments. However, the upper limit per donation remained at £20, although contactless payments can in fact be made up to £30. This anomaly will now be rectified, giving charities a further incentive to push ahead with contactless donation technology. This change is expected to be implemented with effect from 6 April 2019. It also applies to donations made to Community Amateur Sports Clubs (CASCs)

VAT grouping

The Budget confirmed that non-corporate entities will soon be able to enter VAT groups where they can demonstrate control of other group members. This will assist charities as many are still controlled by non-corporate entities such as Trusts and, therefore, the controlling member has been unable to be part of the VAT group.

Simplify group structure and reduce compliance costs

VAT groups can assist in simplifying group structures and reducing VAT compliance costs. It should also be noted that VAT groups are able to defer Making Tax Digital for VAT for a further six months to 1 October 2019.

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Pesh Framjee
Pesh Framjee
Global Head of Non Profits