Most of us these days will have heard of Gift Aid, but how many of us really understand just how beneficial it is to charities that we make sure we tick the Gift Aid box for any donations we may make?
According to National Statistics donations to charities for 2009/2010 could amount to an estimated £4.5 billion, out of that just over £1 billion pounds in tax is expected to be repaid to Charities – that’s as long as the donor ticked the Gift Aid box to enable the charity to make the claim for Gift Aid.
Originally set up in 1990, Gift Aid allows tax-effective giving by individuals to Charities in the United Kingdom. The donor fills out a gift aid form when the goods are delivered or collected and the charity claims back the tax – simple! Plus, wholly owned trading companies of charities are able to shed their profits back to the charity using the Gift Aid scheme – more tax savings directly benefitting the charity.
There are other ways charities can benefit from various tax breaks in respect of its charitable activities. Don’t forget that charity events, including fund-raisers, are exempt from VAT. This means that proceeds, including admission fees, will not attract a charge to VAT – great news for seasonal events and Children In Need!
In addition, the sale of donated goods does not incur a charge to VAT. This is great news for charities and donors alike, as the full amount received will benefit the charity without having to account for VAT, even where the charity is registered for VAT (which many are).
We had a question from a client which raised an interesting point this week, one that was actually obvisous but not one we have come across before. It concerns the levels of commission stores operating the retail exports scheme will receive after the change of vat rate.
We are all aware that retailers will need to review prices post 4 January 2011 to reflect that a higher proportion of the ticket price will need to be paid over in VAT. However, there can be benefits. For example, some retailers operate a Retail Export Scheme. This is where the VAT is refunded to a traveller when they leave the country with goods purchased in the UK. Normally the customer is not refunded all of the VAT; the refund is less an administration fee. The fact that the administration charge is usually based on a percentage of the VAT refunded means that a rise in VAT charged will lead to more commission.
One other point; the commission itself is zero rated, which means that the VAT increase will not affect it at all!
Following the ECJ judgement in the joined case of Danfoss and AstraZeneca, HMRC have announced some changes in the tax treatment of business entertainment of overseas customers.
Subject to evidence of the details of the overseas customers and the type of expenditure, they will now allow the VAT paid out on business entertainment to be reclaimed.
In order for the VAT on entertainment costs to be recovered HMRC expect the business to meet two tests: a necessity test and a strict business purpose test. If the tests are not met then any vat recovery is subject to an equal output VAT payment as a private use charge. The tests are designed to ensure that the entertainment is only to enable the smooth running of the business, i.e. food provision at business meetings, and that the element of private benefit is incidental to the provision of the underlying services or goods by the business i.e. paying for transportation to enable attendance at remote sites.
Clearly as a result of these changes it is now possible to claim back vat incurred on the costs of entertaining overseas business customers, subject to the normal four year cap, and the usual evidence will be required to support any Input Tax claim.
As we gradually digest the deep cuts announced in the Coalition Governments Spending Review what is becoming clear is that they are reliant on the private sector to increase tax revenues. For the cuts to succeed and reduce the deficit, the private sector is going to have to work very hard to create jobs. The current rate of job creation will have to improve significantly in order to take up the slack of public sector redundancies. The fewer people in work, the more difficult it is to maintain the tax revenues that are critical to the whole exercise of balancing the books and keeping inflation and interest rates low.
What do you think? Will these cuts work? What does it mean for your business? Let us know!