Tax in the charity sector: developments and looking ahead

With the significant upheaval the economy has faced as a result of the coronavirus pandemic and Brexit, it is unsurprising that over the past year we have seen government assistance on the tax front. This has included allowing payments of tax to be deferred and introducing targeted reductions in VAT and Business Rates. The upcoming Chancellor’s Budget is expected to yield further changes.

In this update, we highlight a helpful development regarding Gift Aid and also look ahead to some key dates for charities to be aware of in March and April.

Gift Aid

HMRC are expected to confirm that any "waivers" of refunds from charity supporters (including waivers of loans) can count as donations on which Gift Aid can be claimed. This builds on guidance published in April 2020 which allows charities to claim Gift Aid if supporters chose to donate refunds for events cancelled due to coronavirus to the charity. Full details of the new guidance and its conditions are expected soon.

Looking ahead

3 March 2021: Budget 2021

The Chancellor is due to announce the 2021 Budget on 3 March. In advance of this, the Charity Tax Group (CTG) (an industry body) wrote to the government to call for a range of measures to support the charity sector. The CTG’s submission advocates introducing a special 10% VAT rate for charity purchases, enhancing the Gift Aid regime to make up for the impact of coronavirus on donations and protecting key measures such as charity Busines Rates and the Community Infrastructure Levy charity exemption. Farrer & Co has interviewed Richard Bray, chairman of the CTG to discuss these proposals. A podcast of the interview will be available shortly.

31 March 2021: application deadline for Government backed coronavirus loans

As the deadline for applying for Government backed coronavirus loans approaches on the 31 March 2021, Charities should ensure that they have reviewed the support that has been made available and submit any applications they intend to make before the deadline.  

March / April 2021: charities to determine the payment schedule for deferred VAT

Charities that deferred VAT payments due to coronavirus have the option to either pay the VAT in full by 31 March 2021 or to join the new VAT deferral payment scheme by 21 June 2021, which will allow them to pay the VAT in instalments. The month in which a Charity joins the scheme will determine the maximum number of instalments.

April 2021: requirements for Making Tax Digital for VAT coming into force

Charities are required to have digital links between all parts of their functional compatible software by their first VAT Return period starting on or after 1 April 2021. This will bring an end to the "soft landing period", during which HMRC accepted the use of “cut and paste” or "copy and paste" as being a digital link.

6 April 2021: new IR35 (off-payroll working) rules apply to large charities

From 6 April 2021, rules for engaging individuals through personal service companies are changing for private sector organisations, including charities. The responsibility for determining whether the off-payroll working rules (known as IR35) apply will move to the organisation receiving an individual’s services. Organisations which are ‘small’ will be exempt, so it is important for all charities to confirm whether the rules apply to them or if they are exempt, and then proceed accordingly.

30 April 2021: last day of the Job Retention Scheme

The Coronavirus Job Retention Scheme (commonly referred to as the furlough scheme) is due to end on 30 April 2021. While the March Budget is likely to set out what the future of government support during the continued pandemic will look like, charities should ensure that they have plans in place to accommodate a range of outcomes.

Final thoughts

The recent flurry of initiatives to assist charities’ businesses and changes to tax reporting deadlines present new challenges to charities. By keeping up to date with developments, charities can more effectively manage risks and benefit fully from any schemes and support available.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2021