The government has opened a consultation on charities tax compliance and also pledged to work with the sector on reforming gift aid.
The two announcements were part of a broader set of tax measures that were published on tax administration and maintenance day yesterday.
Compliance consultation
The consultation on tax compliance is designed to “help tackle non-compliance and protect the integrity of the sector”, the consultation paper says.
It adds that the government believes that “most charities operate within the current guidelines” but there is “a small group of charities who obtain reliefs in ways that aren’t intended”.
The paper says that any changes brought in due to the consultation will “not detract from the overall generosity of the reliefs or be intended to catch out legitimate charities”.
The consultation, which runs until 20 July, covers four areas, namely:
- Preventing donors from obtaining a financial benefit from their donation.
- Preventing abuse of the charitable investment rules.
- Closing a gap in non-charitable expenditure rules.
- Sanctioning charities that do not meet their filing and payment obligations.
Richard Bray, chair of the Charity Tax Group (CTG), described the consultation as “important” and said: “CTG will work with members and HMRC during the consultation process to ensure that any proposed changes are targeted and proportionate and do not create any unintended consequences for the vast majority of law-abiding charities.”
Gift aid
The government has also promised that it “will continue to engage with the charities sector to improve the way that gift aid works in order to minimise administrative burdens through the use of digital technology”.
In a blog on its website, CTG said that it “understands that this will include a review of the current gift aid processes, as well as research focusing on whether and how to digitise gift aid”.
Bray said: “CTG welcomes the government's commitment to continued engagement with charities to improve the way that gift aid works through the use of digital technology.
“The future of gift aid project, spearheaded by CTG, has broad support and involvement from a wide range of stakeholders including HMRC.
“At a time when charities face pressure on donations this is an important forward-looking step to future-proof gift aid.”
IR35
As well as these charity specific measures, the tax administration and maintenance day package of measures includes proposed changes to the off-payroll working rules, also known as IR35, which may affect some charities.
These rules are designed to ensure that an individual employed through an intermediary, which will often be a personal service company, is not a direct employee in all but name.
This is so that the right amount of tax and National Insurance Contributions are paid and that such an arrangement is not being used just to reduce tax liabilities.
The government has published a technical consultation on potential changes to the rules in order “to address the over-collection of tax in relation to non-compliance with the off-payroll working rules”.
It said: “This can arise from an incorrect employment status determination for off-payroll working purposes.
“In such circumstances, the deemed employer is liable for the full PAYE liability due on the income, however the worker and their personal service company may have already paid tax and National Insurance contributions (NICs) on the same income.
“This consultation seeks input on a potential change to the rules to allow HMRC to set off the tax and NICs already paid against the PAYE liability, resulting in a more equitable distribution of the cost of the worker’s tax liability.”
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