The last year has shone a light on the importance and the significant contributions of Third Sector organisations to the UK’s Civil Society. Many in the sector have been essential in supporting those affected by the pandemic and as a result have experienced increasing demand for their services, while also suffering dramatic cuts in their funding. Despite this, the Chancellor has delivered a Budget with very little direct support to alleviate any of the pressures on these critical organisations.
Looking for positives, there will be some additional relief for charities with shops suffering business rates and an extended period to the lower rate of VAT for those charities which operate within the hospitality and tourism sector. There is also some additional support to national museums and cultural bodies, armed forces charities and those tackling domestic abuse. However, overall it is a Budget which for many will provide very little additional support at this crucial time. We have highlighted the main updates below, which may impact on Non Profits.
Culture Recovery Fund
The Culture Recovery Fund (CRF) was initially a fund of up to £500 million in grants and £270 million of loans administered by the Arts Council and paid out to arts organisations in England in 2020. This fund offered financial support for cultural organisations that were financially stable before COVID-19, but were at imminent risk of failure. The devolved administrations received separate funding. The government will provide a further £300 million to extend the Fund in 2021.
National museums and cultural bodies
In addition to the CRF, the government will provide £90 million for continued support for government-sponsored national museums and cultural bodies in England. As these are directly funded by the government, they were not entitled to apply for the Culture Recovery Fund although they had received separate funds of £98 million in 2020.
The government will extend the Zoo Animals Fund for a further three months until 30 June 2021, providing licensed zoos and aquariums in England with continued support for animal care and essential maintenance costs. The initial funding was for £100 million which ran until 31 March 2021.
The government will provide funding in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses. However, the sector is awaiting confirmation that the EU State Aid rules no long apply. The government is also providing all local authorities in England with an additional £425 million of discretionary business grant funding.
The government will continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.
Additional support for specific charities
The government will provide up to £475,000 to Armed Forces charities in 2021-22 to support the development of a digital and data strategy for the sector. This will improve the ability of charities to work together and with government. An additional £10 million will be provided in 2021-22 to the Armed Forces Covenant Fund Trust, to deliver charitable projects and initiatives across the UK that support veterans with mental health needs. These initiatives will help to ensure that members of the Armed Forces community across the UK can access the support they need in a timely fashion.
Charities tackling domestic abuse have seen a sharp increase in the need for their services. As a result, the government will provide an additional £19 million towards tackling domestic abuse. This includes £15 million in 2021-22 across England and Wales to increase funding for perpetrator programmes that work with offenders to reduce the risk of abuse continuing, and £4 million between 2021-22 and 2022-23 to trial a network of ‘Respite Rooms’ across England to provide specialist support for homeless women facing severe disadvantage.
A lifetime commitment was made in the Budget to continue the Thalidomide Health Grant beyond 2022-23 in England when existing funding runs out, so that anyone supported by it has clarity about the future costs of their care.
Social Investment Tax Relief (SITR)
This scheme was due to end in April 2021 and has now been extended for another two years until April 2023. It gives individual investors in social enterprises Income Tax and Capital Gains Tax reliefs on their investments, subject to a number of conditions.
Information on how the scheme works can be found in HMRC’s guidance here.
Green gilts and national savings product
The Chancellor announced that there would be an opportunity for investors to invest in government bonds to fund expenditures to help meet the government’s environmental objectives. Green gilts worth at least £15 billion will be issued in the financial year 2021-22. A framework for these bonds will be published in June 2021.
More interestingly for small savers, national savings will be issuing a retail product to fund government green investment, such as renewable energy and clean transportation projects to 'help the UK build back greener'. This will be in addition to its 2021-22 financing remit. Market comment is that this are unlikely to be a very large offering or to pay market-leading rates.
Coronavirus Job Retention Scheme (CJRS)
Having extended the original 2020 furlough scheme three times, it comes as no surprise that the Chancellor has extended the scheme once again. It will run to 30 September 2021. Employees will receive 80% of their wages throughout. Employers will contribute 10% in July and 20% in August/September as the furlough scheme is phased out. This will be welcome news for those affected by the continuing lockdown, with the easing of restrictions from June.
There will be a HMRC taskforce established to tackle alleged fraud to ensure compliant funding so it continues to be important to check that claims are correct and on time.
Self-Employment Income Support Scheme (SEISS)
As part of Budget the Chancellor announced a further extension to this scheme with the introduction of a fourth and fifth grant. The extension will apply to any qualifying individual who has already submitted their 2019/20 Self-Assessment tax return, and will be welcome news for those who were new to self-employment in 2019/20 and were ineligible for previous grants.
In line with earlier claims, the fourth grant, covering the period February to April, will be worth 80% of three months’ average trading profit, capped at £7,500. The application window for this will open in late April.
The fifth and final grant covers the period May to September, again based on three months’ average profit. Individuals who have seen their turnover reduce by over 30% as a result of the pandemic will receive the usual 80%. However, for those who do not meet this threshold, their claim will be reduced to 30% of average profits, capped at £2,850. Applications for the final grant can be made from late July.
In order to support future employment opportunities the current grant of £1,500 (for those aged 25+) will be doubled to £3,000 per year, with no age restriction. Whether this will have the desired effect is debatable, as the existing apprenticeship scheme has so far failed to demonstrate the impact the government expected.
It was announced that the hospitality and tourism sector will continue to enjoy the 5% rate of VAT that was first introduced in July 2020. This lower rate will be in place until 30 September 2021 and the rate increased to 12.5% for the following six months to help these businesses recover from the long period of lockdown. This may have some benefit for those charities with restaurant and café services.
The threshold for VAT registration is to remain at £85,000 of taxable supplies until April 2024. This is likely to bring more businesses within the scope of the VAT regime and require them to register. It will be important for charities to continue to monitor their position against the VAT threshold to make sure they identify any need to register for VAT on a timely basis.
Corporation tax rates
For the first time since 2015, from April 2023 there will be two rates of corporation tax. The lower rate, applying to companies with profits of £50,000 or less, will be 19%. The higher, for companies with profits over £250,000, will be 25%. In between there will be a taper so that profits in between these limits will be taxed at a rate somewhere between the two.
Corporate charities or trading subsidiaries with tax to pay (after deducting any Gift Aid payments) will probably be at the lower end of the scale. It should be remembered, however, that these limits will need to be divided between the number of companies in the group, so that if a charity limited by guarantee has two trading subsidiaries, the upper limit reduces to £83,333 and the lower limit to £16,667 for each of the companies in the group.
Temporary three year extension to loss relief carry back
A number of trading subsidiaries have found themselves in a loss-making position due to COVID. This may leave them unable to pay Gift Aid in full or in part for the preceding year, as directors need to take into account current year losses, when calculating how much Gift Aid to pay for the previous year. This problem can be alleviated if the losses can be carried back to the preceding tax year, as is currently the case.
The carry-back period will be extended to three years for losses made in the period 1 April 2020 to 31 March 2022. There will be an upper limit on the losses carried back for each year of £2 million. This limit will apply on a group level, so it will need to be allocated between different group companies according to need.
Due to the availability of Gift Aid, this extension in unlikely to be of much use in practice for charity trading subsidiaries, but there may be cases where it is helpful.
A number of measures will be implemented to allow businesses to claim higher capital allowances on plant and machinery. Between 1 April 2021 and 31 March 2023, investments in most plant and machinery will qualify for a 130% super-deduction, while investments in assets qualifying for special rate relief (fixtures in buildings, long life assets or cars with high CO2 emissions) will be given a 50% first-year allowance.
In addition, the 100% Annual Investment Allowance has temporarily been set at £1 million.This increased limit will now continue to 31 December 2021.
If plant and machinery is held in a trading subsidiary the mismatch between depreciation and capital allowances can cause tax liabilities to arise, and for this reason most plant and machinery is held in the parent charity. However, the super deduction might change the rationale for this decision for the next two years. We would recommend preparing calculations of the potential benefits before deciding on where to make significant acquisitions (and of course the items would have to be used for the subsidiary’s trade).
Research and development tax credits – cap on SME scheme
Charities cannot themselves claim research and development tax credits, but some have trading subsidiaries that are engaged in scientific research and therefore can claim under either the more generous scheme for Small and Medium-sized Enterprises (whereby the company can exchange its R&D spend for a cash payment of 14.5% of the surrenderable amount), or the less generous RDEC scheme for larger companies (whereby a smaller proportion of cash can be claimed after settlement of a number of other liabilities).
The cash payment for an accounting period under the SME scheme will now be limited to a maximum of £20,000 plus three times the company’s total PAYE and National Insurance contributions liability for the period. It will take effect for accounting periods beginning on or after 1 April 2021. This is labelled as an ’anti-abuse’ provision, and has been subject to consultation. It may well, however, have an effect on trading subsidiaries’ claims.
Alongside the Budget, a consultation document has been published to ask stakeholders whether the two schemes are operating as desired and whether improvements could be made. The consultation is open until 2 June 2021.
Withholding tax on interest and royalties paid to EU countries
From 1 June 2021 charities that pay interest and royalties to EU companies will have to consider whether they need to deduct 20% withholding tax on these payments. From that date the UK is repealing the legislation which currently means that such payments must be made without deduction of withholding tax.
Budget 2021: VAT administration updates
Budget 2021: COVID-19 VAT measures
Budget 2021: Crowe reactions