Not for profit

Boom in bureaucracy

At same time as announcing the extension of charity tax reliefs to overseas charities, government has introduced a raft of extra bureaucracy that will affect all existing charities at some stage.

To qualify for charity tax reliefs and exemptions a charity will have to satisfy a new definition of charity which includes a fit and proper test for trustees and key employees. Existing charities it seems will have to go through the procedures if they change the person in their organisation who submits tax returns or makes the gift aid claims. Guidance will be published soon on how HMRC will conduct the fit and proper tests and which trustees and officials from the charity that they will apply to. Any person that HMRC considers likely to exploit charity tax reliefs for non-charitable purposes will fail the test.

The new Charity Application Form will have to be completed by all new charities  but also by existing charities who are claiming gift aid for the first time or who have to file a tax return.

There will be a new form R68 for gift aid reclaims or other tax reclaims which we are told will be an 'intelligent' form that automatically work out the period of the claim and the amounts claimed as you enter the figures. This may be helpful indeed but will no longer be used to notify changes of address or bank details or nominated officials.

Instead a new Charities Variation Form will have to be used to notify these details and a draft of the new form will be available in April.

Finally, there will be additional obligations upon charities that send funds overseas to ensure that the funds are spent charitably. These burdens already exist in current legislation but it seems that the new rules will require charities to carry out appropriate checks before the money is sent.

HMRC tell us that it will interpret these rules reasonably so as to not discourage UK charities from sending money overseas or penalise genuine charities that are unknowingly exploited by an overseas organisation or where speed is important in the case of a humanitarian disaster overseas.

Some of these measures have been prompted by an increase in fraudulent claims for Gift aid.

In detail

VAT relief on cost-sharing arrangements may be on the cards
UK charities suffer greater VAT costs than charities in many other European countries because of the UK’s failure to implement a key VAT relief available under European VAT legislation.  This may now change following a Budget announcement.

Charities obliged to repay VAT claimed under ‘Lennartz’
Following the announcement earlier this year that Lennartz accounting will only be available for business assets put to private use and not to those assets put to ‘non-business’ use, March’s Budget contained provisions which ensure that charities that have already adopted the mechanism must continue to make output tax payments on those assets.

Extension of UK charity tax relief
Following a 2009 European Court of Justice ruling, UK charity tax reliefs are to be extended to charities in the EU, Norway and Iceland. Legal and procedural changes are being introduced simultaneously and will affect the way UK charities interact with HMRC.