A look at the numerous changes to the tax regime in recent months including online filing

1. Charity Finance Directors’ Group
Update on tax and gift aid
Kate Sayer
12 May 2011

2. Agenda
• Online filing of corporation tax returns
• Gift aid
• Substantial donors
• Tainted donations
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3. Online filing - overview
• Applies to corporation tax payers
• Limited companies, IPSs, Royal Charter, Act of Parliament,
unincorporated associations etc. Not charitable trusts
• Applies to returns for periods ending from 1 April 2010
submitted from 1 April 2011
• By default must submit tax return over the internet with
accounts and computations in iXBRL format
• But various exceptions and exemptions
• Claims, elections, statements etc must be attached as
PDFs
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4. Online filing – formats required
Claims,
Tax
Company type Accounts elections
Comps
etc
Registered under Companies Acts
Industrial & Provident Society iXBRL
Friendly Society
iXBRL PDF
Royal Charter company
PDF or
Act of Parliament company
iXBRL
Unincorporated association
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5. Online filing – what is iXBRL?
• Similar to PDF, but viewed in a web browser
• Numbers, text etc are assigned tags (descriptions) so can
be easily extracted by software
• Tags must adhere to a specified “taxonomy”
• Various different taxonomies e.g. IFRS for listed
companies
• For UK charities the relevant taxonomies are:
• UK common data – company name, address etc
• UK GAAP taxonomy - UK unlisted company
• Charity SORP extension - additional tags for UK charities
• HMRC computational taxonomy – for tagging computations
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6. Online filing – tagging
• Must tag every item in accounts and computations for
which there is a tag
• But up to to April 2013, just have to tag the “minimum
tagging list”
Taxonomy Full tags Minimum
list
UK common data module 1,028 1,028
Standard UK GAAP 5,292 1,253
Charities extension 334 334
CT computations 4,164 1,207
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7. Online filing – transitional policy
• In Feb 2011 HMRC announced:
• HMRC software will only reject iXBRL accounts and
computations if “gateway validation tags” missing
• If pass gateway validation, HMRC will only reject where HMRC
believes there has not been a reasonable attempt made to tag
a part of the submission
• And HMRC will discuss this with you first
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8. Online filing – HMRC product
• HMRC’s “free online filing software”
• Can also use to send accounts to Companies House
• Downloadable PDF. Fill in and send back to HMRC. Can
attach documents in iXBRL or PDF
Section Restrictions
CT600 Short format only, but includes CT600e
Accounts Standard trading company template
template Can only use if turnover < £6.5m, no fixed asset
investments, no gift aid, no prior year adjustments etc
Computations Only cover trading income, bank interest, trade losses
Attachments Can attach iXBRL or PDF
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9. Online filing – small charities
• HMRC accounts template not suitable for small charities
• HMRC will provide an accounts template for small
charities, but until then small charities can attach
accounts as PDF
• Small = group income < £6.5m
• Include grants and donations
• Non-small charities can still use the CT600 and
computation parts online
• Just have to attach accounts in iXBRL (Ltd Co, IPS) or
PDF (Royal Charter, Uninc Assoc) as required
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10. Online filing - summary
Small
Non-small charity Trading Co
charity
CT600, Use HMRC download if suitable, otherwise use HMRC
CT600e online form or tax software
iXBRL - Ltd Co or IPS
Accounts PDF PDF - Royal Charter, Uninc HMRC
Assoc template if
suitable,
otherwise
Not usually necessary, if required use iXBRL
Computations HMRC template if suitable, otherwise
iXBRL
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11. Gift aid – transitional relief
Reminder:
•Ended on donations made after 5 April 2011
•Must be claimed within 2 years:
• From end of accounting year of donation for
charitable companies
• From end of tax year of donation for charitable trusts
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12. Gift aid – annual benefit limit
From April 2011
•Annual donor benefit limit will increase from £500 to
£2,500
•But 5% limit on donations above £1,000 will remain
•E.g. gift £50,000 – can now give benefit of £2,500,
previously limit was £500
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13. Gift aid – small donations scheme
From April 2013:
•Will be able to claim gift aid on up to £5,000 worth of small
donations (up to £10 each) without gift aid declarations
•But must :
• Have been registered with HMRC for gift aid for at least
three years
• Operating gift aid successfully throughout that time and
• Have a good tax compliance record
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14. Gift aid – online filing
• In 2012/13 HMRC will introduce a new system to register
online for gift aid and make online gift aid claims
• HMRC will publish intelligent R68 forms to submit online
• HMRC will also work with the charity sector to develop a
supporting electronic gift aid database for gift aid
declarations
• But to pay for will remove SA Donate
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15. Other budget changes
• From April 2012, reduced rate of inheritance tax (IHT) of
36% if give at least 10% of estate to charity
• Will also have to apply to legacies to any EU, Norway or Iceland charity
• Government to explore how to increase the take up of
payroll giving
• New guidance will be published to help clarify what
constitutes a gift aid benefit
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16. Substantial donor rules
• Introduced in 2006
• SD = person who makes relievable gifts to a charity of
£25k or more in 12 months or £150k or more in six years
• Transactions between charity and SD are non-charitable
expenditure for the charity if various conditions met
• Widely criticised – penalise innocent transactions
• E.g. if charity employs someone connected to a SD, all
salary payments are non-charitable expenditure
• To be phased out from April 2011 and replaced with new
“tainted donation” rules
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17. Substantial donors – phasing out
• No donations after 1 April 2011 count towards substantial
donor thresholds i.e. no new SDs can be created from 1 April
• From April 2011 a transaction with an existing SD is only
caught if it is tainted
• Means reasonable to assume the transaction was not
entered into independently of a tainted donation
• SD legislation is repealed from 1 April 2013, except for
contracts entered into before 1 April 2013
• But if contract is varied after then, SD rules cease to apply
• E.g. if employ a person connected to a SD, vary the terms on
or after 1 April 2013 to stop the SD rules applying
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18. Tainted donations - outline
• Applies to tax relievable donations made from April 2011
• Gift aid (individual & company); payroll giving; gifts of qualifying
investments and land; and gifts of chargeable assets, trading stock,
plant and machinery
• When a donation is tainted it loses its tax relief for the
donor
• A gift aid claim by the charity is not blocked, but, any gift
aid claimable (even if not claimed) must be paid to
HMRC by the donor or by any other “potentially
advantaged person”
• The charity is also jointly and severally liable for the gift
aid payment if it was a party to and aware of the tainted
arrangement at the time it was entered into
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19. Tainted donation - meaning
Linked person = donor or person connected to donor
Arrangement = any scheme, arrangement or understanding of any kind, whether
or not legally enforceable, involving one or more transactions
Two conditions must both be met:
A.Donation is part of an arrangement involving a linked
person and reasonable to assume the donation would not
have been made independently of the arrangement
B.One of the main purposes of the arrangement for the
linked person is to gain a financial advantage for a linked
person from the charity or a connected charity
• A donation from a wholly owned charity subsidiary cannot be
tainted unless the subsidiary has taken over the business of a
linked person
• A donation from a housing association in the same group
cannot be tainted
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20. Tainted donations – financial advantage
• Financial advantage includes where the arrangement
involves a transaction which is:
• More beneficial for a linked person than arms length or
• Not of a kind which a person dealing at arm’s length and in place
of the charity might reasonably be expected to make
• But ignore:
• Benefit allowed by the specific conditions for tax relief (eg: within
gift aid donor benefit limits)
• Where the advantage is applied for charitable purposes only
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21. Tainted donations – risk for charity
1) Charity receives a donation on which gift aid can be
claimed
2) Charity gives something back and that giving back is at
undervalue
3) 1) and 2) are part of an arrangement to which the charity
is a party
4) Charity was aware (when it entered into the arrangement)
the purpose for the linked person in entering into the
arrangement was to obtain a financial advantage from the
charity
5) Then charity can be held liable for paying the gift aid
claimable to HMRC – even if it did not claim it
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22. Tainted donations – HMRC example
• Mr A is a trustee of a charity and also controls company D which runs
a leisure centre used by the charity. D wishes to refurbish the leisure
centre
• Mr A makes gift aid donation to the charity of £100k
• Charity loans £125k to D interest free
• Gift aid donation is tainted (condition A likely to be met, condition B
definitely met)
Comment:
• The beneficial loan is in consequence of the gift and received by a
person connected to the donor so gift aid is blocked by s417 ITA
2007 anyway.
• Even if not, the loan is non-qualifying for the charity, so non-
charitable expenditure.
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