Don Bawtree: A slight rise in the sector's tax relief

Charities would still benefit from a relaxation in the rules on Gift Aid, writes our finance expert

Don Bawtree
Don Bawtree

- HM Revenue & Customs has updated its statistics on the value of charitable tax reliefs, which shows overall reliefs for charities rising slightly to £3.3bn in 2014/15 from the previous year's £3.1bn. The main components of this are £1.6bn from business rates relief, £1.2bn from Gift Aid and £300m in VAT reliefs.

The value of the Gift Aid Small Donations Scheme in 2014/15 was £21m, £2m lower than earlier estimates but more than the £6m of 2013/14, the scheme's initial year. This seems to underline the slow take-up of this useful relief. Although the recent Budget increased the scope of GASDS, charities would still benefit from a relaxation in the rules to really unlock its potential.

Although those benefits accrue not to individuals but to charities, individuals do get tax relief on charitable giving. This is mainly from inheritance tax relief, higher-rate relief on Gift Aid and payroll giving: such benefits totalled £1.2bn in 2014/15, £100m more than the year before.

- The Budget in March introduced limited VAT refunds for certain charities, and HMRC has now published VAT Notice 1001 to explain how those rules apply. The only charities eligible for refunds under the new rules are palliative care, air ambulance, search and rescue, and medical courier charities. Organisations that operate as or call themselves hospices need to ensure they meet the strict definition set out in this notice.

- Charities might choose to publish additional financial information for a period other than their full financial year. To make this easier, the Financial Reporting Council has issued Financial Reporting Standard 104: Interim Financial Reporting, which governs how interim accounts should be presented when the full, annual financial statements are prepared in accordance with either FRS 102 or the FRS 102-compliant Sorp accounting standard for charities.

Among other things, FRS 104 sets out the minimum financial information that should be disclosed in these reports, their form and content, and a requirement to explain significant events and transactions that might have affected performance.

The new standard is written on the basis that any interim financial report is intended only to provide an update on the most recent complete set of annual financial statements and, accordingly, it requires a focus on new activities, events and circumstances since the last financial year-end. It will not require significant duplication of information previously reported.

- Charities registered at Companies House should note that the Small Business, Enterprise and Employment Act 2015, which received Royal Assent on 26 March, abolishes company annual returns.

They will be replaced with a statement filed at least once a year confirming that the publicly disclosed information on the company is correct. This comes into force in April 2016.

- The continuing dispute between the IT company Hewlett-Packard and the founder of Autonomy, an IT firm acquired by H-P in 2011, seems to be focusing on the application of different sets of accounting standards as applied to income recognition - the implication being that Autonomy inflated its revenues before its sale.

Such confusion is not limited to commercial transactions. In the charity sector, too, there are some curious rules about when income is shown, and trustees need to be properly aware of these if they are to make properly informed financial decisions. Tempting though it might be to avoid doing so, trustees would be well advised to give the Sorp a good read.

Don Bawtree is lead partner for charities at accountants BDO LLP

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