The Charities Act 2022 (the Act) received Royal Assent on 24 February 2022 and brings into force a number of key changes to the Charities Act 2011, aimed at simplifying a number of processes.
We have set out some of the key changes that apply to England and Wales.
Governing document amendments
Amendments have been made to the Act to more closely align the rules for charities amending their constitution irrespective of the legal structure. Whilst the Commission will still need to approve any regulated amendments (e.g. changes to the charity’s objects), they will now apply the same consistent criteria to approve these.
Permanent endowments
The definition of permanent endowments has been updated with a simplified definition where property is considered to be a permanent endowment if it is ‘subject to a restriction on being expended which distinguishes between income and capital’. The Charities Act has also been updated to increase the maximum value of a permanent endowment that
Trustees can resolve to release restrictions on spending capital from £10,000 to £25,000. This power has also been extended to incorporated entities.In addition, a new provision in the Act will allow Trustees to borrow up to 25% of the value of a charity’s permanent endowment subject to the amount being repaid within 20 years of being borrowed.
Mergers
A key amendment to the Act allows for legacies to be transferred to a merged charity. This change will remove the need for ‘shell charities’ to be maintained and therefore reduce administration costs.
Failed appeals
The Act introduces new rules granting the power for trustees to apply cy-près, allowing charities more flexibility in response to a charity appeal that has failed, allowing donations to be applied for another charitable purposes rather than having to be returned to donors under certain conditions:
- The donation is a single gift of £120 or less; or
- The donor, after all agreed actions have been taken, cannot be identified or found; or
- The donor cannot be identified (for example cash collections)
Payments to Trustees
Trustees (or a person connected to the trustee) may receive payment for the provision of services to a charity under certain conditions. The Act extends this provision to allow payment for the provision of goods to a charity.
Ex Gratia Payments
Amendments to the act allow for ex gratia payments to be made without the Commission’s consent, up to a maximum of £20,000 depending on the charity’s income. In addition, this decision can be delegated to staff.
The Charity Commission ran a public consultation in April 2021 in respect of updated guidance for responsible investments. Previous Charity Commission guidance was based on the outdated Bishop of Oxford case in 1992.
The outcome of this case recognised that there were times when a charity may wish to pursue an ethical approach to its investments, but that this was a secondary consideration to maximising investment income. The results of the Charity Commission consultation were published on 18 August 2021.
During the consultation two charities were granted permission to bring a case relating to responsible investment to the High Court, The Ashden Trust and the Mark Leonard Trust.
Their investment policies, approved by the High Court were based on scientific evidence of climate change and excluded, as far as practically possible, investments not aligned with the goals of the Paris Agreement. The charities were seeking clarification of the law. Previous case law in the 1992 Bishop of established the principle that charity trustees should maximise return on their investments and ought not to take into account ethical or moral considerations that could cause financial detriment to the charity.
There were exceptions to these where an investment directly conflicted with the charity’s purposes or indirectly conflicts with its work.
The new High Court ruling establishes that trustees of charitable trusts are allowed to prioritise climate change in their investment policies even if it risks reducing financial returns. The Charity Commission has signalled that it will now publish its updated CC14 guidance.
ACAS has published guidance for employers on hybrid working, following the extended period of remote working as a result of the coronavirus pandemic.
The guidance is broken down into the following five sections:
- Considering hybrid working for your organisation
- Consulting and preparing to introduce hybrid working
- Creating a hybrid working policy
- Treating staff fairly in hybrid working
- Supporting and managing staff in hybrid working
The guidance also considers other legal matters that employers should consider, including data and privacy issues, health and safety issues and working time requirements.
As part of Charity Fraud Awareness Week, the Charity Commission issued a press release warning charity trustees and management to ‘take action on fraud’ as new figures show £8million reported lost to crime last year.
The latest data from Action Fraud shows 1,059 separate incidents of fraud were reported by charities in just one year from April 2020 to March 2021.Together with the Fraud Advisory Panel, the regulator is urging all trustees to sign up to a new Stop Fraud Pledge, which commits charities to taking six practical actions to reduce the chances of falling victim to fraud.
The pledge includes the following measures:
- Appoint a suitable person (staff member, volunteer or trustee) to champion counter fraud work throughout the organisation
- Ensure that all trustees are aware of their legal duty to protect the charity’s assets.
- Consult with staff, volunteers and trustees to identify the types of fraud that threaten the organization and the ways they can be prevented.
- Create a written fraud policy and share it regularly – with staff, volunteers and trustees – so that everyone understands what fraud is and how they can help prevent it.
- Perform checks on the individuals and organisations with whom we have a financial relationship.
- Assess annually how well the fraud controls are working, taking into account new risks and making improvements as needed.
Our Fraud Risk Assessment guidance can be used to help you assess fraud risk appropriately, it incudes:
- key questions for Boards to ask as a starting point in considering fraud risk
- detailed organisational counter fraud checklist which lists key questions for Boards on areas of organisational resilience
- checklist of potential fraud risks by function and activity
- set of questions from the National Cyber Security Centre (NCSC) publication “10 Steps to Cyber Security” to assist Boards with their existing strategic-level risk discussions.
It has been possible for many charities to move back to face-to-face meetings and hold any outstanding AGMs or other meetings in person where required. On 21 April 2022 the more flexible approach to charities holding meetings outside of the terms of their governing documents came to an end.
Meetings
All charities should check that their governing document allows them to hold meetings in the way they want to, whether that’s online, by telephone, remotely or in person.
Holding meetings online or by telephone
Trustees should check if their charity’s governing document allows them to hold meetings online, by telephone or on a hybrid basis.
If your governing document does not allow online, telephone or hybrid meetings you should consider if you can use any power (usually in your governing document) to amend the rules to allow these types of meetings.
The Charity Commission’s guidance on meetings explains:
“Charity trustees may choose to conduct some trustee meetings by electronic means, unless the governing document specifically prohibits it, and provided that the means used allows them to both see and hear each other, for example, by using video conferencing or internet video facilities.”
In contrast, as telephone conferencing only permits the participants to hear but not see each other it does not constitute a ‘meeting’ within the meaning of the decision in the Byng case. However, it is still possible for meetings to be arranged in the form of a telephone conference if there is a specific provision in the charity’s governing document.
If there is no power in the governing document to hold meetings by telephone the trustees can alter the governing document to adopt such a power. This alteration can be made if there is a suitable power of amendment in the charity’s governing document.
In the absence of a specific power to conduct business by telephone conferencing, such a method may only be used for preliminary discussions, etc, relating to business which has to be transacted at a meeting.
Any decisions taken in the course of a telephone conference where the business concerned has to be transacted at a meeting in the strict sense could become the subject of a potential legal challenge.
In contrast, as telephone conferencing only permits the participants to hear but not see each other it does not constitute a ‘meeting’ within the meaning of the decision in the Byng case. However, it is still possible for meetings to be arranged in the form of a telephone conference if there is a specific provision in the charity’s governing document.
If there is no power in the governing document to hold meetings by telephone the trustees can alter the governing document to adopt such a power. This alteration can be made if there is a suitable power of amendment in the charity’s governing document.
In the absence of a specific power to conduct business by telephone conferencing, such a method may only be used for preliminary discussions, etc, relating to business which has to be transacted at a meeting.
Any decisions taken in the course of a telephone conference where the business concerned has to be transacted at a meeting in the strict sense could become the subject of a potential legal challenge.
Compliance and other regulatory matters
The Charity Commission has updated its guidance published to assist trustees of international aid charities to improve their safeguarding practices.
The alert includes a number of key steps that trustee may consider, including:
- making sure policies, communications and ongoing performance management help maintain appropriate behaviours by charity staff and workers to each other and the beneficiaries they serve
- joining the Misconduct Disclosure Scheme to help protect your charity and other organisations in the sector from individuals who pose a safeguarding risk
- giving victims and survivors, and their families and friends, a safe means to report their concerns and complaints
- launching robust and timely investigations into allegations or concerns where they arise
A copy of the alert can be found here along with the Commission’s guidance Safeguarding and protection people for charities and trustees.
In March 2022 the FCDO updated its guidance on Safeguarding against sexual exploitation and abuse and harassment (SEAH) in the aid sector. Safeguarding against sexual exploitation and abuse and harassment (SEAH) in the aid sector - GOV.UK (www.gov.uk)
The Government has introduced new measures which will require businesses to commit to net zero by 2050 and publish clear and credible reductions plans before they can bid for major government contracts.
Under the new measures, for procurements advertised on or after 30 September 2021, suppliers bidding for contracts above £5million a year will need to have committed to the government’s target of net zero by 2050 and have published a carbon reduction plan.
Carbon Reduction Plans (‘CRP’) must meet the required standard, and includes (but is not limited to):
- Confirming the bidding supplier’s commitment to achieving Net Zero by 2050 for their UK operations.
- Providing the supplier’s current emissions for the sources included in Scope 1 and 2 of the GHG Protocol, and a defined subset of Scope 3 emissions.
- Providing emissions reporting in CO2e (Carbon Dioxide Equivalent) for the six greenhouse gases covered by the Kyoto Protocol4
- Setting out the environmental management measures in effect, including certification schemes or specific carbon reduction measures you have adopted, and that you will be able to apply when performing the contract and that support achieving Net Zero by 2050.
- Publication of the CRP on the supplier’s website.
Further details can be found here along with the Procurement Policy Note issued by the Cabinet Office here.
There has been a sharp increase in fundraising complaints since February 2022, according to the Fundraising Regulator’s annual report.
The type of complaints received does reflect the operational changes made during the pandemic.
As the sector was forced to move from face-to-face fundraising and embrace more digital techniques, there was inevitably an increase in complaints regarding digital fundraising.
Charity collection bags remains the fundraising method receiving the most complaints, this was followed by digital fundraising in the latest report.
There was a 252% increase in the number of complaints received during the period of 1st April 2020 to 31st March 2021, compared to data from the previous year. This includes complaints about:
- Social media
- Charity website
- Advertising banners.
A number of changes to the Fundraising Preference Service (FPS) have been announced by the Fundraising Regulator, following an independent review of the FPS.
The review noted that the service continues to be an important tool that allows individuals to control the direct marketing communications they receive from charities, and recommended a number of actions to further strengthen this service.
Changes launched include the self-reporting pathway in April 2022. This will enable charities to report incidents where there may have been a breach of the Code of Fundraising Practice.
Guidance and criteria will be provided by the Fundraising Regulator.
Nine recommendations were made as a result of the review in total, including increasing the number of suppressions that can be made in a single online transaction and the provision of additional guidance to charities of actions to take when suppression requests are received.
Previously in one online transaction members of the public could request that a maximum of three charities stop sending marketing materials. This has now been increased to 10 for online transactions, and 20 where the regulator is contacted by telephone.
Full details of the review and changes can be found here.
In May 2022 The Government published the Procurement Bill, intended to improve the regulation of public procurement.
Charities delivering public services for local and central government will be impacted by changes in the Bill. This is an important income stream for many in the sector, amendments that improve transparency and fairness will be welcomed and long due.
The Bill also seeks to support businesses by making public procurement more accessible to small businesses, including social purpose and non profits.
Although there are many positives included in the Bill, there may be unintended consequences for local Government making it harder to meet procurement objectives.
Charities can get involved with influencing the Bill as it moves through Parliament.
The Charity Commission has proposed changes to how it classifies charities for more effective and accurate reporting.
The current classification is broad and therefore does not provide enough information for details segmentation.
52% of charities select education and training to describe what they do, but there is no way to delve deeper into what this means.
The proposed changes will provide more details data on the ‘what’, ‘why’ and ‘who’ classifications.
The Commission has undertaken user testing and will publish updates in due course. You can read more about the changes below.
View the details
From 10 June 2021 all art market participants (AMPs) dealing in transactions of €10,000 or above were required to register, as part of the EU’s Money Laundering Directive.
Charities in these markets will need to ensure they are aware of the latest guidance. As traditional monetary transactions become harder for criminal activity to penetrate due to tighter controls and regulation, the arts market may be more vulnerable.
Risks common to all AMPs:
- Unusual sales or purchase activity
- Anonymity
- Face-to-face sales compared to other sales
- Off record sales
- Risks relating to the Money Laundering Regulations:
- Reliance
- Linked transactions
- Data protection
- Online verification
- Unregistered AMPs
- Online sales
- Rental of art and interior designs
Financial reporting and other reporting
The Charity Commission has launched formal a consultation on proposed changes to the Annual Return. The Return has not changed significantly since 2018.
The Annual Return needs to be completed by all charities with an annual income of £10,000 plus, within 10 months of the end of their financial year.
The Commission has stated its desire to be more data driven and the Annual Return feeds many of the Commissions analyses. The proposed changes will require charities to answer a large number of questions when filing.
The additional questions will be designed to:
- Better understand charities’ sources of funding
- Gain greater insight on roles and responsibilities
- Create a more accurate geographical spread
- Create a clearer picture with regard to staffing and payroll.
It is important that charities have their say and engage with the consultation, to ensure that the relevant considerations can impact decision making.
Charities can take part by responding to the online survey below, the consultation ends September 1st 2022.
Crowe worked with Charity Transfers to carry out a survey and to produce “The INGO FX Insights Report 2021”.
While the research shows there is work to do, it is in many ways encouraging that most organisations recognise the risks they face, even if they sometimes lack the expertise or resources to manage them. This is particularly important to drive improvement as INGOs face significant financial challenges.
Key points from the report:
- Charity challenges
- Protecting funding from foreign exchange volatility
- Lack of transparency on FX remittance costs
- Lack of competition when making transfers
- Use of banks versus FX brokers
- Transaction challenges
- In-country payments – hard versus local currency
- Difficulty setting accurate budget rates
- Use of official policies to manage FX risk
Find the report here, a new survey is due be launched soon. Members of CFG can see our article in the May/June issue of Finance Focus.
In June 2021, the Financial Reporting Council updated the amendment to FRS 102 in respect of Covid-19 related rent concessions, extending the period to which the amendments apply to 30 June 2022.
Under the amendments, any reduction in lease payments are recognised over the period that the change in lease payments is intended to compensate. For example, if a lessee is offered a rent holiday such that the rent due for July 2021 to December 2022 is waived, no lease expense would be recognized in that period.
The lessee will also need to disclose the change in lease payments recognised in profit or loss in accordance with the amendments, unless the entity is a small entity applying Section 1A of FRS 102, in which case such a disclosure is recommended.
The effective date for these amendments is accounting periods beginning on or after 1 January 2021, with early application permitted.
Sustainability and environmental issues continue to be high priority for all sectors. The Charity SORP Committee produced a briefing note reflecting on the current approach to sustainability reporting.
The Committee sought to identify whether elements of sustainability reporting should be introduced into the trustees’ annual report, and discuss preferred options should this be the case.
The current SORP ask charities to identify the difference their work has made to society as a whole.
The Committee noted that additional support would likely be required to enable charities to comply with additional reporting requirements, and the need to address the scope of the sector.
The current requirements are different for large charities, this would need to remain consistent in order to avoid burdening smaller charities.
The full briefing note can be found below.
You can find our guidance on Climate Change and Streamlined Energy Carbon Reporting below.
Climate change: Making decisions today for tomorrow
Taxation
Charities are allowed to acquire advertising services from suppliers with the zero-rate of VAT but one condition for the relief to apply is that the advertising is made to the general public.
After consultation with the charity and advertising sector, HMRC released its Revenue and Customs Brief 13 in September 2020. The brief indicated that some supplies that are made by suppliers like Facebook could be treated as zero-rated, e.g. audience targeting and location targeting.
However, the notice goes on to state that the standard rate of VAT applies to social media accounts because "when individuals log in to their personal pages, sites use tools to apply advertisements to them when they are signed in. The content will be related to the individual’s known likes, dislikes, interests or location, as a signed in member of the website."
We have a number of charity clients that are affected by this as they use suppliers like Facebook for a number of fundraising campaigns. As Facebook is based outside the UK it is up to the UK based charity to account for any VAT due and this is often to a large extent irrecoverable. Therefore, we have written to HMRC to seek clarification of its position.
HMRC has been provided with numerous examples of services and the terms and conditions applicable.
HMRC's response states that all supplies of Facebook advertising fall outside of zero-rated advertising. Consequently, 20% VAT must be accounted for by charities on such supplies received from suppliers based outside the UK.
HMRC's position is now clear and unless it is successfully challenged reverse charge VAT should be applied to services received from suppliers such as Facebook.
If VAT has not been applied to these services, HMRC should be notified of the amount of tax due in order that any penalties applicable can be mitigated.
Our Insight in January 2021 discussed the impact of the decision of the Upper Tier Tribunal in Colchester Institute case and the potential adverse effects it could have upon institutions other than those in the Further Education sector.
Subsequently there has been a further unsuccessful attempt by a FE College to exploit the decision made by the Upper Tier Tribunal (read the transcript) and HMRC has also responded with its guidance in its business brief 08/21.
The decision has a direct application to those in the Further Education sector that receive grant income. However, in theory the conclusion arrived at by the Tribunal could be applied to any entity that has received grant income and has treated this as ‘non-business’.
The decision in Colchester Institute reversed the common opinion that grant income is used to support non-business activities as the court opined that funding from The Skill Funding Agency (SFA) and the Education Funding Agency (EFA) was in fact consideration for supplies of educational services.
In theory this could have wide reaching application in relation to the zero-rating of buildings used for charitable purposes, the application of reduce rate VAT to Fuel and Power and recovery of VAT on costs using both the standard method and special methods of partial exemption.
Many VAT commentators have seen the decision by the Tribunal as a threat to common well-founded VAT treatments applied by charities.
HMRC’s brief 08/21 does give comfort to the charities’ sector as well as the education sector since it essentially confirms that it disagrees with the Tribunal’s decision and states that whilst it will not appeal, its policy on grant funded education will not change.
Therefore, it appears that HMRC has no motivation to use the decision to serve a wider purpose and disturb well established VAT treatments for the charities’ sector.
Furthermore, it is willing to retain the status quo in relation to SFA and EFA funding (i.e. treat the income as non-business).
1. Donated Goods Retail Gift Aid - Scheme and VAT
The Retail Gift Aid scheme is used by many charities in order to treat what would have been the sale of donated goods as donations of cash by acting as agent for the owners in selling their goods. This enables the charity to be able to claim Gift Aid
It is important to note, that from a VAT perspective, this changes the nature of the transaction entirely. If donated goods are sold the shop is making a zero-rated taxable business activity which enables VAT recovery on associated costs. Whereas, if a charity is selling goods on behalf of someone in return for a donation, this is a ‘non-business activity’ and so while there is no VAT due on the donation, VAT cannot be recovered on the associated costs.
This can result in the shop being required to apply an apportionment to arrive at the correct amount of VAT recoverable in relation to the shop costs so VAT administration increases and VAT recovery is reduced.
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Solution: To properly operate the scheme, the charity should charge a VAT bearing commission to the donor of the goods. This does mean a small amount of VAT being paid to HMRC but VAT on associated costs incurred on the shops can be recovered in full. |
2. Lottery ticket sales from shops
Most charities that operate a lottery sell tickets by entering into monthly agreements with customers who buy directly from a head-office. In addition, some tickets may also be sold in charity shops.
Lottery tickets are exempt from VAT, and therefore, no VAT is due on the sales but VAT cannot be recovered on associated costs. This results in less VAT being recovered by the charity and also adds an extra layer of administration as shop overhead costs
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Solution: In reality, the VAT bearing costs used by the shop to make the lottery/raffle ticket sales is minimal and so application should be made to HMRC to apply a fairer apportionment on shop costs where these sales exist. |
3. Effect of COVID-19 on VAT recovery rates
The COVID-19 pandemic has resulted in many charity shops, cafes and social enterprise activities having to close temporarily. This could have an impact on the amount of VAT recoverable on overhead costs, particularly where the charity uses an income-based apportionment as the proxy for recovery (e.g. the standard method of partial exemption). This is because taxable income has been reduced while exempt income may have remained constant. For example, care services in general will have continued during lockdown, while shops/cafes and conference venues have remained closed.
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Solution: Apply to HMRC to agree an alternative recovery method for the year. HMRC has released an information sheet which states it will look at these requests sympathetically and has set up a purpose-built inbox to review these applications. We would suggest that charities review their recovery rates to see if there has been, or will be (using a forecast), a heavy reduction input tax recovery so this can be addressed. HMRC’s release can be accessed here. |
The government has announced on 8 September 2021 a new Health and Social Care Levy to pay for reforms to the care sector and NHS funding in England.
The levy will apply from April 2022, although will operate slightly differently in 2022–23 compared to future tax years.
From April 2022, the levy will see an increase of 1.25% on the rates of:
- Class 1 Primary and Secondary National Insurance Contributions – paid by employees and employers on gross wages, respectively
- Class 1A and Class 1B Contributions – paid by employers on benefits provided to employees
- Class 4 National Insurance Contributions – paid by the self-employed on profits.
In 2022–23, this will operate as a simple increase of the National Insurance Contributions rates, so only those liable to pay National Insurance Contributions will be subject to the levy.
From 2023–24 onwards, once HMRC have developed new systems, the levy will operate as a separate payment to National Insurance Contributions, and it will also apply to those above the State Pension age, which is currently not the case for Class 1 Primary and Class 4 National Insurance Contributions.
However, existing reliefs for Class 1 Secondary National Insurance Contributions will also apply to the new levy for employers of apprentices under the age of 25, all employees under the age of 21, veterans, and new employees in Freeports (from April 2022). The levy deduction will appear separately on employee payslips.
From an employer perspective, the effective increase in Class 1 Secondary National Insurance Contributions means that employment costs will increase. It is important that employers assess the impact of this increase on their employment costs and assess how it can be funded.
Alternatively, employers may wish to consider other means of remunerating their employees, for example, through tax-efficient benefits, which would not be subject to the levy.
From 1 October 2021 the VAT rate applied to hospitality changed from 5% to 12.5%.
From 15 July 2020 VAT had been chargeable at 5% on:
- on-premises catering and non-alcoholic drinks sold with catering
- hot takeaway food and drinks
- admissions to attractions including theatres and amusement parks
- hotel and holiday accommodation.
This was always intended to be a temporary measure to boost the hospitality sector at this difficult time. Rather than return to 20% VAT in one go, the VAT rate applicable to these goods and services changed to 12.5% where these are supplied between 1 October 2021 and 31 March 2022.
It should be noted that none of the above affects situations where no VAT is chargeable, such as cold takeaway food.
We have produced guidance on actions both suppliers and customers should take.
HMRC has recently released its policy, Revenue and Customs Brief 11, in relation to the VAT treatment of COVID-19 tests.
HMRC has stated that the medical care exemption will apply in instances where:
- the service incorporates the administration of the test to the patient; and
- the provision of the results,
- by a medical professional or somebody supervised by a medical professional such as a qualified registered nurse, doctor or a state regulated institution.
Exemption can still apply where the service is supplied by a non-registered person but the services are ‘wholly performed’ by a medical professional. Exemption does not apply where:
- the service is provided by UK Accredited Service or the Care Quality Commission as HMRC does not consider these as being state regulated
- the service is administered by the patient themselves. Therefore, lateral flow tests are standard rated
- tests are supplied by manufacturers to hospitals. pharmacies.
HMRC’s policy may be challenged as the application to some scenarios could be complicated and provide results that will appear inequitable. However, if your organisation’s treatment is not in line with the policy corrective action should be taken both retrospectively and going forward.
Furthermore, if a supplier has been applying standard rate VAT where exemption applies, the over-charged VAT can be recovered by seeking a credit from the supplier.
Over the last couple of years many charities and/or their trading subsidiaries have claimed payments under the coronavirus job retention scheme (CJRS).
The CJRS scheme ended on 30 September 2021 and was replaced by the Job Support Scheme (JSS).
Charities may also have claimed the following COVID grants, or ‘coronavirus support payments’ (CSP), which include:
- the self-employment income support scheme (SEISS),
- the small business grant fund,
- the retail, hospitality and leisure grant fund, the local authority discretionary grants fund,
- the coronavirus statutory sick pay (SSP) rebate scheme,
- the equivalent grant funds in Scotland, Wales and Northern Ireland
- amounts paid under the test and trace support payment scheme and its equivalent in Scotland and Wales, called self-isolation support payments
- Eat Out to Help Out (EOTHO)
CJRS and other CSP payments are generally stated to be taxable for income or corporation tax – is that the case for charities?
If the payments are to support a charitable (ie a non-taxable) activity of a charity, they are not taxable. If they are to support a non-charitable trade, then they will be included in the profits from that trade, as the expenditure covered will be tax-deductible.
If the turnover from the trade is below the de minimis limit for income or corporation tax (currently £80,000 in a tax year, or less if the charity’s total income is below £320,000) then the grant payments will not be counted when calculating whether the turnover goes over that limit. However, once the turnover is over that limit, then the CJRS/CSP receipts become taxable income.
If the CJRS or CSP grant relates to two different activities, one charitable and the other non-charitable, then it needs to be apportioned between the two on a reasonable basis.
EOTHO was implemented separately from other CSPs. HMRC guidance for EOTHO states that “You must include the payments you receive as income when you calculate your taxable profits for Income Tax and Corporation Tax purposes”.
Reporting CJRS payments
However, when it comes to reporting grant payments to HMRC, there are additional tax return reporting requirements for CJRS, JSS, JRB and EOTHO. The JRB, or Job Retention Bonus, is not yet in operation. The Eat Out To Help Out scheme (EOTHO) applied in August 2020.
Whether or not the amounts received are taxable, they need to be reported on the charity’s tax return (if it needs to complete one). On the Corporation tax return there are three boxes for CJRS receipts, boxes 471-473. Box 471 records CJRS payments actually received in the period, Box 472 records entitlement over the same period. If the total in Box 471 is larger than the total in Box 472, then clearly there is an overpayment that must be returned, less any overpayments that have already been reported to HRMC or already assessed (Box 473).
Box 474 relates only to JRB and EOTHO overpayments. EOTHO claims need to be reported in Box 647.
The amount owed to HMRC for CJRS is recorded in Box 526. However, this amount is not added to the total of any corporation tax due. It is treated as income tax, and a separate assessment will be issued to collect it.
For trust and estate returns the reporting requirements are contained in Boxes 21.6A and 21.6B. Amounts entered in box 21.6B will be added to the income tax liability of the Trust or Estate, so it is important that if any overclaimed amounts have already been assessed, they are not included in the amount in this box. The individual amounts claimed need to be reported on the relevant boxes of the supplementary pages.
CJRS claims made by trading subsidiaries
If a subsidiary has made its own CJRS (or other CSP grant) claim then clearly this needs to be recorded on its tax return. However, many charities have claimed CJRS for their employees, and then recharged a portion relating to the employees’ work for the trading subsidiary. It is important that the company that has actually claimed the CJRS reports the full amount on its tax return, before any recharges, otherwise confusion will result.
At the Spring Statement the Chancellor announced that the basic rate of income tax will be reduced from 20% to 19% in 2024.
This will also reduce the rate of tax that charities can claim on individual Gift Aid donations. There will be a three-year transition period which will maintain the income tax rate for Gift Aid at its current level until April 2027, but charities with significant Gift Aid income should consider the long term impact once this transitional period ends. The reduction will also apply to donations under the Gift Aid Small Donations Scheme
In theory, charity donors can make up the Gift Aid deficit by increasing the amount of their donations, so that the benefit of the income tax saving is passed on to the charity. In practice this is unlikely to happen often, especially with smaller donations, because many donors will not usually calculate their donations based on the gross amount before tax.
In view of this change in income tax rate, some practical considerations charities may consider include:
- Major donors may be open to adjusting their larger donations to account for the effect of the reduced income tax rate.
- Communicating the impact on the charity of the loss of Gift Aid income to donors and potential donors may result in more donations generally.
- Other forms of tax efficient giving such as payroll giving, legacies and gifts of land or shares will not be affected by the change in income tax rate and may be worth exploring and promoting further.
HMRC have issued revised Gift Aid guidance to clarify that the naming of a building or part of a building after a donor will not usually constitute a benefit for Gift Aid purposes.
The updated wording, in HMRC’s Chapter 3 guidance, amends a previous update in August 2019 which was unclear on the position of naming rights and implied that the naming of a building would either have to be unsolicited or it would be considered a benefit which would potentially render the donation ineligible for Gift Aid.
The new guidance states that, as long as the naming does not act as an advertisement or sponsorship for a business, then it will not be considered a benefit. It also states that if a separate agreement is entered into for advertisement or sponsorship, these transactions would be outside the scope of the Gift Aid scheme.
This revised wording brings greater clarity to the position and is better aligned with HMRC’s equivalent guidance on the direct tax treatment of charity sponsorship arrangements.
