Prepare to defend VAT exemptions after Brexit, says Charity Tax Group adviser

Graham Elliott tells the CTG's annual tax conference that the sector should not expect the tax system to be reformed to its advantage when the UK leaves the European Union

Graham Elliott
Graham Elliott

Charities should be prepared to defend their existing VAT exemptions and zero rates after the UK leaves the European Union rather than simply assuming VAT will be reformed to their advantage, according to Graham Elliott, technical adviser to the Charity Tax Group.

The European Union currently sets VAT policy across all of its member states, which has prevented the UK government from making substantial changes to the VAT regime. Some charities hope Brexit will allow for a reduction in the rate of VAT they pay.

But speaking at the CTG’s annual tax conference in London yesterday, Elliott questioned whether the VAT system would be reformed for the benefit of charities after the UK’s departure. He cited a speech given by Jane Ellison, the Financial Secretary to the Treasury, earlier at the conference, in which she suggested that VAT policy was "likely to be quite a big issue in the negotiations" about the UK’s exit from the EU.

Elliott said: "It’s obvious, it seems to me, that there will be aspects to do with VAT and our rules post-Brexit that will have to be governed by certain aspects of some agreement with the European Union countries.

"It is clear that we will have very, very slow, glacial change in any VAT issue."

Elliott also warned there was a risk that any reforms introduced by the UK government could weaken charities’ VAT position, and said the sector should be prepared to defend any existing exemptions and zero rates.

He said: "EU law has defended certain types of circumstance because it was too difficult for the government to attack them.

"After a clean Brexit, you need to think about what you should have been defending all this time if you want to defend certain status quos that might gradually disappear."

Speaking alongside Elliott, Luigi Lungarella, VAT director at the accountancy firm PKF Littlejohn, said there was a small risk that a goods and services tax would replace VAT, which would be "very welcome for the majority of the electorate but not so much for charities".

Also at the conference, Karen Atkinson, head of charity and social investment finance at the City of London Corporation, said she had been told by HM Revenue & Customs that it was taking a more lenient approach to charities submitting information to comply with the common reporting standard.

The CRS is an international standard for the automatic exchange of information to help prevent tax evasion, and the rules will be implemented in the UK on 31 May.

Some grant-making charities and trusts are classed as "financial institutions" under the CRS, and HMRC guidance for the charity sector about the CRS was updated only in January.

Atkinson said HMRC recognised that charities had had little time to prepare for the CRS in comparison with other sectors, and HMRC’s lead on the CRS had told her that "we are understanding this is not easy for you and we are understanding that guidelines have only just come out, so if you feel you are not able to make this reporting deadline get in touch, share what your difficulties are and we will listen to you".

John Hemming, chairman of the CTG and head of tax at the Wellcome Trust, said the CRS meant the trust was sending out "1,000 letters" to its grant recipients abroad to collect information such as type of business, tax reference number and proof of tax residence to meet the new requirements.

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