Charities could lose millions of pounds if their trading subsidiaries are not exempted from HM Revenue & Customs’ reforms to digital tax records, according to a letter from the Charity Finance Group and six accountancy firms.
Making Tax Digital, which will be introduced by HMRC over the next four years, will force most businesses to introduce digital record-keeping and produce quarterly updates.
HMRC has already confirmed that charities will be granted an exemption, but the letter says this should be extended to cover charities’ trading subsidiaries, which at the moment will still have to adopt the Making Tax Digital proposals.
The letter, which is addressed to Mel Stride, the recently appointed Financial Secretary to the Treasury, says charities’ trading subsidiaries are currently allowed a nine-month extension after their accounting periods to distribute taxable profits through Corporate Gift Aid.
This idea, which was introduced to give charities time to calculate their taxable profits, would be undermined by the introduction of Making Tax Digital, the letter says.
"Although it is difficult to give an exact cost for this decision, it is our belief that charities could be forced to pay millions in fees each year to file digital returns which will be of no real value to HMRC," the letter says.
"We appreciate that an exemption has already been given to charities, but we believe that it would be in the spirit of that decision to extend the exemption to wholly-owned trading subsidiaries for charities."
The accountancy firms Crowe Clark Whitehill, Mazars, Summers Morgan, Buzzacott, Wilkins Kennedy and BHP have also signed the letter.