Being male, I am used to female colleagues and friends telling me that I am incapable of multitasking. Of course, I beg to differ and I just hope that I am right! But if ever multitasking is necessary, it seems that the pandemic is one such time.
With the huge challenges that we face, we can end up just thinking about our immediate problems. But we must not forget the whole picture. Survival only makes sense if there is a future to look forward to. That is why it is important that we do not take our eye off the ball as far as tax issues are concerned.
1. Monitor tax efficiency, especially during change
When money is tight, it is essential that we make it work as hard as it can. The public perception that charities do not pay tax could not be further from the truth. Vary large sums are paid by charities in employment taxes and irrecoverable VAT. It is important that we pay no more tax than is necessary.
There is also the distinct possibility that with the restructuring that many charities are going through, tax issues will be overlooked. For example, a VAT partial exemption agreement with HMRC might need to be revisited. Change triggers tax issues and the cost of overlooking them could be disastrous in the current climate.
One consequence of the pandemic is likely to be consolidation in the sector, including closer working arrangements that fall short of merger. Where this happens, understanding the tax consequences of new structures should be a key part of how these arrangements are set up. For example, sharing services can lead to unforeseen irrecoverable VAT implications.
2. Maximise Gift Aid
There are also some simple ways that the tax system can be made to work better for charities. Gift Aid is “free money”. No doubt many charities could do more to get supporters to sign up to Gift Aid or improve their cash flow by submitting more frequent Gift Aid claims.
3. Check on your digital advertising
A recent success for the sector has been The Charity Tax Group getting HMRC to accept that many forms of charity digital advertising can now be made VAT free. I was heavily involved with the long running dialogue that led to this change and I appreciate how complicated digital advertising can be. Fundraising charities need to be aware of this development. They could be due significant refunds of VAT. More details can be found in an article in the November edition of Charity Finance Magazine.
4. Keep up with Making Tax Digital
There are also tax developments that charities must keep on their radar and should try and take in their stride. The most challenging part of the Making Tax Digital for VAT journey is to ensure that there are appropriate “digital links” in place as part of the VAT return process. These ensure that human intervention in preparing a VAT return is minimised. From April next year, HMRC expects all VAT returns to comply with this requirement. It will not be an adequate excuse to say I am not able to comply as I had more important things to do at the time!
5. …And with the off-payroll working rules
A similar deadline applies to compliance with the new off-payroll working rules. These affect large charities that contract with personal services companies. This can lead to these companies being treated for tax purposes in exactly the same way as if they were employees.
6. Consider investing in professional advice
In this challenging financial landscape, it can be tempting to cut all costs that can be avoided. Whilst it will be impossible to do anything else in some cases, it can be a mistake. An investment in professional tax advice now may make a lot of sense overall. For example, a VAT health check might help ensure that your charity pays no more irrecoverable VAT than is strictly necessary.
Certainly, where major reorganisation is happening, getting professional advice should not be overlooked. Simply shutting our eyes and hoping for the best is not recommended!
7. Support the protection of charities’ tax benefits
A longer-term concern is how the tax system will change in the aftermath of Covid-19. Charities will not be immune from the impact of this. It is widely acknowledged that in the short term, the tax system may not be very different as the economy is allowed to get back on its feet, but this is not sustainable in the longer term. Covid will have to be paid for, and charities do have many generous tax reliefs and exemptions; for example, in having mandatory rates relief and favourable VAT treatments. These will come into the spotlight like never before. Many will question them.
It is important that the charity sector is defending them not just with sentiment but with compelling arguments based on evidence. All charities have a role to play in supporting charity sector groups that are trying to do this – financially and otherwise.
For example, the Charity Tax Group has undertaken a project that enables the value of charity VAT exemptions and the amount that the charity sector pays in irrecoverable VAT to be determined. This will be an essential tool for the charity sector in the post Covid world.
As a sector we need to deal with the challenge of the present whilst having an eye to the future. This applies to tax issues as much as anything else. We need to multitask! Our rich heritage of longevity and our conviction that what we do matters should not lead us to do anything less.
Richard Bray is vice-chair of the Charity Tax Group
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