Don Bawtree: Keep your eyes on Gift Aid issues

The situation with the tax relief is in flux, writes our columnist

Don Bawtree
Don Bawtree

There is a lot happening on Gift Aid, most of it still in flux: HM Revenue & Customs is consulting on benefits receivable in relation to Gift Aid donations; we are expecting revised guidance on the operation of the retail Gift Aid scheme and, in conjunction with that, revised and simplified Gift Aid declarations will be introduced over the winter. Clarification is still awaited over what charities with trading subsidiaries should do about Gift Aid payments where the company has negative reserves - in other words, is probably insolvent. All this shows the need for charities to keep on top of the issue. For most charities in receipt of substantial amounts of voluntary income, Gift-Aided donations are high volume, low value. This means small mistakes can be difficult to spot, but can become big liabilities if replicated across large populations for years.

The CEO and VAT

In an unusual VAT case, the Mary Rose Trust sought permission from the Charity Commission to amend its governing document to enable its chief executives, now and in the future, to join the trustee board and receive remuneration. The commission approved the appointment of the incumbent chief executive to the board, but rejected the wider application, with the proviso that the commission would review the situation with every future appointment. The trust requested a review of the decision; the commission changed its mind and allowed the trust to alter its governing document. The trust has, in effect, forced itself outside the "cultural exemption" for VAT on admission charges, for which one of the conditions is an entirely voluntary board, so that it could achieve full recovery of VAT on its major capital project.

Tax was payable

The judgment on the Institute for Orthodox Christian Studies in Cambridge has been issued. The case concerned an assessment for output tax due on the sale to the charity of an opted property (where the owner has opted for it to be subject to VAT for both selling and renting). The trustees argued VAT should not have been charged on the purchase because the building was intended for a relevant charitable purpose, but HMRC successfully argued that the charity's teaching-related income was, in effect, a business and part of the property was rented out.

Beware minimum wage

The economic environment continues to be challenging, and planned changes to the national minimum wage will be an extra factor for some charities. It is surprisingly easy to fall foul of the law: figures released by HMRC show fines given to businesses for not paying the minimum wage have reached record highs. Nearly £1m was clawed back from employers in the last financial year - more than eight times as much as was the case five years ago. HMRC is increasingly focusing on this area; trade unions are also alert to it. Charities are not exempt!

Ethics consultation

The Financial Reporting Council has published a consultation paper on new ethical standards for auditors, which enshrines its proposed approach to auditors providing non-audit services to audit clients. Auditors need to be independent if they are to be effective, and audit committees should always be discussing this with their own firms. The rules are stricter for "public interest entities" (listed companies) than for other companies. Charities should also consider how they relate to these rules in the absence of specific guidance. The general principles are largely unchanged, although more services are prohibited than has been the case hitherto. The draft deals with threats from self-interest, self-review, management decision-making, advocacy, familiarity and intimidation. Auditors and audit committees are required to consider the relevance of any non-audit service to the audit, the extent of the judgement involved, the fee and its basis, and the nature and extent of staff involvement, both from the audit firm and its client.

Don Bawtree is lead partner for charities at accountants BDO LLP

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