Chancellor of the Exchequer has delivered his last budget before Brexit. Overall, it was a budget of modest increases in expenditure or tax reliefs to address pressure points which are proving difficult or unpopular, such as Rates Relief or Universal Credit, but not abandoning fiscal responsibility, particularly in the run up to Brexit.
The main issues that will specifically affect the not-for-profit sector and charities in particular are as follows:
Revised IR35 rules
The revised IR35 rules for payments through personal service companies are being extended from the public to large and medium-sized entities in the private sector from April 2020. The actual rules regarding the amount of tax are unchanged but responsibility for collection has moved from the individual’s company to the paying organisation, which will enable HMRC to more effectively police this. If an organisation is paying an individual through that individual’s personal service company it will need to ensure that the work carried out is not that of an employee. If it is, it will need to deduct PAYE and NIC in a similar way to it would for an employee. Determining employment status is a complex area but the consequences of getting this wrong are potentially very expensive so any organisations making payments in this way need to ensure that this treatment is justified, or change their procedures to comply with the new rules. Alternatively, the individuals can be brought back onto the payroll. There is a delay in implementation to give organisations the chance to consider this and where appropriate change their payment or employment arrangements.
“Small Trading Exemption”
For Charities, the “Small Trading Exemption” for trading income (falling outside that charity’s “primary purpose”) is to be increased for the first time for 20 years. This is a valuable relief as it avoids the need to either pay tax on this income or to set up a trading subsidiary to channel this income through Gift Aid. The relief works on a series of bands based on the charity’s total income and will exempt income up to £8,000 (increased from £5,000) or for charities with income of more than £320,000 up to £80,000 (up from £50,000), with a sliding scale between.
Although this may remove direct tax consequences, charities should continue to consider VAT thresholds and also the need to ring-fence charitable funds from potentially risky trading ventures.
Simplification of the donor benefits rules
Draft legislation has been issued which simplifies the donor benefits rules that apply to charities who claim Gift Aid tax relief on donations. From 6 April 2019 the benefit threshold for the first £100 of the donation will remain at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.
- There is a programme of modest relief against business rates for smaller premises. This may for instance benefit small charity shops.
- VAT registration thresholds remain unchanged (registration at £85,000, deregistration at £83,000). Consultation is ongoing on VAT registration to try and mitigate the “cliff-edge” differential between VAT-registered and non-VAT Registered businesses.
- For charities, there is an increase in qualifying donations under the “Gift Aid Small Donations Scheme” (GASDS) to £30 per donation. There are also relaxations in the compliance rules for Retail Gift Aid.
- Support for various charitable sectors including armed forces charities, air ambulances, food distribution charities and village halls totalling £44m has been announced. There is also £650m of additional funding for local authorities to spend on social care, much of which is provided by the charitable sector.
One thing that was anticipated but which did not happen were changes to fees charged by intermediaries on gift aid. This is still a live issue, but there are ongoing discussions between intermediaries such as Just Giving and the sector so it seems it was thought best to let these take their course rather than legislate.
As ever, if you would like to discuss the implications for your organisation, please speak to your usual contact or Malcolm Lucas.