Speaker at CFG's Annual Conference 2012

1. Tax Update and Current Hot Topics
Andrea Sofield
VAT Partner
Helen Riley
Corporate Tax Director
CFG Grant Thornton.pptx

2. Agenda
• Grants
• VAT recoveries
• When to use a trading subsidiary
• Cost sharing exemption
• Listed Buildings
• Gift Aid
• Other budget changes

3. Grants
• Is it a grant or is it a contract?
- current hot topic
- are the funds contributed to your project?
- did the funder ask for a project to be
undertaken?

4. VAT Recoveries
• Business/Non Business and Partial Exemption
- What method should I use?
- Do I have to agree the method(s) with HMRC?

5. When to use a Trading Subsidiary
- Is the activity primary purpose?
- Change the liability of supplies
- Maximise VAT recovery
- Re-charges

6. Using trading subsidiaries - reminders
and issues …
• Investments (equity and loans) in trading
subsidiaries must meet "qualifying investment"
test
- failure means taxable income equal to investment
- no prior clearance available
- important to document rationale for commercial
decision

7. Using trading subsidiaries - reminders
and issues …
When accounting profits are less than taxable profits…
• may not be able to eliminate tax liability by gift aid
Possible strategies:
• avoid non deductible expenditure in subsidiary
• introduce source of non taxable income - eg UK dividends
• increase distributable reserves by capital reduction scheme

8. Trading Subsidiaries
• Possible strategies (contd)
- do not use subs with accumulated losses for new profitable
activities - may not be able to use losses
- if more than one subsidiary, review group relief strategy - if
appropriate, displace gift aid to future year

9. Cost Sharing Exemption
• Usable by a wide range of organisations - need to meet
Conditions.
• Straightforward to operate, minimising compliance and
administrative burdens.
• Does not create opportunities for abuse and avoidance.
• Should not be an alternative to outsourcing or Private
Sector partnering.

10. Cost Sharing Exemption - Possible
applications
CSE - where might it be beneficial?
Any service that involves a significant staff cost,
for example:
• Repairs & Maintenance
• Grant application
• Finance
• IT
• Human Resources

11. Cost Sharing Exemption - Conditions
• Independent Group of persons
• Members must make exempt / non-business
supplies
• Directly necessary services
- HMRC's will accept that all services received by a
member from a CSG may be treated as directly
necessary and, therefore, VAT exempt if more than
85% of the member's activities by value are exempt or
non-business (or if the member restricts more than
85% of VAT incurred).

12. Cost Sharing Exemption - Conditions
• Services supplied at cost
• Distortion of Competition
- HMRC consider that the provision of services
by a CSG on a cost and VAT free basis does
not in itself result in a distortion of competition.

13. Listed Buildings
• Approved alterations
• What can still be zero-rated
• Transitional Provisions

14. Gift Aid - new guidance on donor
declarations
• Updated guidance from HMRC on gift aid
declaration wording - new model declarations
issued February 2012 available on HMRC
website
• Use of model declaration ensures HMRC will
accept validity
• Old style declarations will be accepted until
December 2012

15. Gift Aid donor declarations
- what must be included (1)
• the name of the charity
• the donor's name - as a minimum the initial
of the first name and the last name in full
• the donor's home address - as a minimum
the house number/name and postcode
• whether the declaration covers only the
present donation or past and/or future
donations as well

16. Gift Aid Donor declarations
- what must be included (2)
• a statement or verbal confirmation by the donor that
Gift Aid is to apply - on a written form or on a
website, a tick box is sufficient
• confirmation the donor has been given an
explanation that they must pay at least as much UK
income tax and/or capital gains tax (for the year of
the donation) as the amount that will be claimed by
the charity or CASC and any other charities and
CASCs they donate to (model also specifies that tax
does not include eg VAT and council tax).

17. Budget proposals to limit gift aid relief
• Caps relief at higher of 25% of
income/£50,000
• Only applies to donor's tax relief
• No (direct) impact on donee charity's
position
• BUT widespread concern on indirect
impact - how will it affect donors'
behaviour?
• Under consultation….

18. Gift Aid Small Donations Scheme
• Announced in Budget 2011
• Consultation document currently available
• Consultation closes 25 May 2012
• to apply from 6 April 2013
• allows charities to reclaim Gift Aid equivalent
on small donations (up to £20) totalling up to
£5,000 without formal declarations etc
• Must have good Gift Aid compliance record

19. Gift Aid - in year claims
• Finance Bill 2012 contains provisions to
allow charitable companies and CASCs
to make in year claims for Gift Aid
repayments (first announced in 2010,
and previously a concession)

20. Other tax measures being
introduced…from Budget 2011
• upper limit on benefits that charities may provide to
Gift Aid donors increased from £500 to £2,500
• for deaths occurring from 6 April 2012, a reduced
rate of inheritance tax (IHT) to 36% will apply where
10% or more of a deceased‘s net estate is left to
charity; and
• a scheme to provide a tax reduction to people
who, during their lifetime, donate pre-eminent objects
to the nation included in 2012 Finance Bill