While the Chancellor has increased spending on public services there is very little which will be of direct benefit to the charity sector. There will be some additional relief for charities with shops suffering business rates and the opportunity to increase VAT recovery for those issuing publications in an electronic form. Overall, a Budget which for many will provide very little support to help them meet their challenges.
VAT on e-publications
The government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020. To make it clear that means e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts.
This is good news for charities that have or are considering issuing their members with electronic publications as part of their membership package. Charities who sell electronic publications will also benefit as they will no longer have to account for VAT from 1 December 2020 as their sales will now be zero rated, as opposed to the previously standard rated.
This means that there is an opportunity to switch publications from paper to electronic from 1 December 2020 to increase the charity’s VAT recovery without increasing the output VAT. For some there may be the chance to voluntarily register for VAT from that date in order to start recovering VAT on costs incurred. Charities considering voluntary registration should carefully consider any other implications on activities.
Sadly there is no mention of any retrospective action following HMRC’s defeat in the News Corp Upper Tier Tribunal Case. However, the decision, which has been the precursor to this change, will no doubt be resolved with further litigation.
Until then, there is an opportunity to put in protective claims going back four years for any overpaid VAT on e-publication sales. Charities should also contact suppliers who have provided the charity with e-publications over this period with a view to them submitting a protective claim on the standard rated supplies they have made to the charity.
As part of his raft of measures aimed at supporting business through the COVID-19 outbreak, the Chancellor announced additional business rate reliefs for small shops and businesses, of which charities with shops should be able to benefit from.
The retail discount scheme has been in operation since April 2019, and applies a discount to the rates of occupied retail properties with a rateable value of less than £51,000. The discount due to apply from 1 April was 50%, but has now been increased to 100%. It applies to properties used as shops (and charity shops are specifically included), restaurants, cafes, drinking establishments, cinemas and live music venues. Charities are of course entitled to 80% exemption from business rates for properties which are occupied by the charity and used for charitable purposes, but they will be entitled to claim the retail discount on all properties that qualify, whether or not used for charitable purposes (for instance, a bar or café might be run to generate funds for the charity by being open to the general public).
However, larger charities need to be aware that the relief is subject to State Aid de minimis limits, which allow an undertaking to receive no more than 200,000 Euros of state aid over a three year period. If the charity has already breached this limit the relief would not be available.
The Chancellor also announced the launch of a fundamental review of business rates, due to be reported in the autumn. Among other things, the review will consider the “effectiveness and operation of different reliefs”. Charity rates relief is now worth upwards of £2 billion annually to the sector in England.
The review may not necessarily be good news for charities, given that the devolved administrations are currently putting pressure on charity reliefs in certain areas. Scottish independent schools are due to lose charity rate relief from September 2020 and the Welsh government is currently consulting about charity rate relief and in particular, seeking views on charitable rates relief for schools and hospitals in Wales. The Welsh consultation is due to close on 24 April 2020.
Measures were announced including a £500 million hardship fund for local authorities to support vulnerable people, changes to statutory sick pay, an emergency support fund for the NHS and the provision of business interruption loans for small business.
It is difficult to predict the financial or operational implications of the outbreak of COVID-19 on the UK economy or the organisations which operate within it. Evidence from other countries where there has been a significant outbreak suggests a slowdown in economic activity either as a result of governmental response or from changes in individual behaviours. This could therefore be significant for charities.
Reduced funding, an unavailable workforce or a drop in visitor numbers are just a handful of the issues that could affect different charities in the coming weeks as the impact of coronavirus becomes clearer.
It is important for organisations to start scenario planning and revisit their strategies to reduce any potential impact.
Charities should plan for all possible scenarios still in the hope that the least damaging scenario will happen. Our blog written for the Charity Finance Group highlights a number of areas charities need to consider in their scenario planning, budgeting, forecasting and risk registers.
Read the full blog.
HMRC currently has a practice of not taxing voluntary office holders on their reimbursed expenses. As office holders they are entitled to the normal expenses relief rules, such as those on travel in the course of their work. However, this only covers business expenses and would not include the reimbursement of private expenses which are often provided to volunteers, such as travel from home to the place where they volunteer. With effect from 6 April 2020 this more generous treatment is brought into the legislation.
View all our Budget 2020 announcements