Don Bawtree: What's new with Gift Aid

Also: the Financial Reporting Council on the Sorp, and the Charity Commission on tax evasion

Don Bawtree
Don Bawtree

Something that might help the next Statement of Recommended Practice has been trailed by the Financial Reporting Council in a July newsletter. It promised a report in the autumn looking at whether cash-flow statements are of much use in a set of accounts. It seemed to conclude that "the disclosures that help investors… are often provided outside of the cash-flow statement, and maybe outside of the annual report completely". In charities it is rare for anyone to pay much attention to the cash-flow statements, which therefore become almost a waste of space, especially with proper free reserves disclosures.

HMRC

Analysis by the Institute of Fiscal Studies, published in August, of HM Revenue & Customs tax records shows that a record number of adults are paying no income tax, with the proportion rising from 38 per cent in 2010 to 43 per cent now. The figures also reveal that the top 1 per cent of earners account for 27 per cent of the income tax take. These high earners are concentrated in specific parts of the country and, intriguingly, the IFS notes that top earners come and go. Information about high earners is interesting to fundraisers, but it is also important to know what is going on at the other end of the earnings table. With more and more people no longer paying income tax, charities need to be especially conscious of the need to ensure that Gift Aid donors are paying enough tax to cover the amount reclaimed by the charity.

HMRC has updated its guidance on benefits received by Gift Aid donors and connected persons. This does not reflect new law, simply clearer guidance, one hopes. The Charity Tax Group has welcomed changes relating to representing the relevant value test as two not three thresholds, applying the disregard to electronic literature as well as physical literature, and a more flexible approach to valuing benefits where there is no commercial value.

However, the CTG also laments the lack of any extra explanation of the "in-consequence" rule. It is often tricky to work out whether a benefit received relates specifically to a Gift Aid donation or not, and charities could benefit from extra guidance to work this out.

Film, high-end television, animation, video games, children’s television, theatre, orchestras, and museum and gallery exhibitions are part of a range of tax reliefs available to the creative industries. Charities can benefit from these. The latest statistics produced by HMRC show that theatre claims continue to rise, with the highest proportion of claims being for quite small amounts, under £10,000, and only 6 per cent of the claims amounting to more than £250,000. The figures show that £78m was paid out in total, compared with just £13m for orchestra tax relief and £4m for museums and exhibitions, although this latter category is expected to grow quickly. The HMRC data does not identify the extent to which registered charities are making these claims.

The regulators

The Charity Commission is drawing attention to the HMRC reminder that charity trustees and staff can be criminally liable if they fail to prevent their staff or those that represent them from facilitating illegal tax evasion. The offence came into force in September 2017: it does not substantially alter what is illegal tax evasion, but focuses on who is held accountable for enabling or allowing it.

The Charity Commission of Northern Ireland has issued a somewhat less scary reminder, but one that applies across the UK. It asks charities to check on the regulator’s website to ensure that they have submitted the right documents when sending in a set of year-end accounts. The CCNI said it had seen bank statements, email exchanges and letters sent in. These then become public information until withdrawn, so clearly there is scope here for embarrassment, or even a serious data breach. The prize for the most bizarre entry apparently goes to the organisation that filed a set of instructions on playing bridge. Perhaps the rules of bridge are simpler than the Sorp.

Don Bawtree is lead partner for charities at accountants BDO LLP

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