What does the Budget mean for the Charities sector?
Although not drawing a line under Covid, the Chancellors’ speech was delivered in a ‘post-Covid age of optimism’ which focused on spending. A limited number of tax measures were announced and none which would appear to fund the spending. However, there was a clear statement that the Government has limits.
The previously announced Corporation Tax increases coming into effect from April 2023, and the Health and Social Care Levy, together with the better than expected post-Covid recovery may have provided the backdrop for this.
Although the tax measures were light this time around, there were a few charity specific measures, in addition to funding to support museums, cultural and sporting organisations.
Business rates relief
The Chancellor announced that business rates will be reformed, but crucially for the sector, confirmed that existing reliefs, including the mandatory and discretionary charity reliefs, will remain in place. The Final Report of the Business Rates Consultation confirms “Reliefs play a vital role in ensuring the overall sustainability and fairness of the tax and the Government keeps the full set of reliefs under review to ensure they remain fit for purpose. The government does not intend to remove any of the existing reliefs at this time.” This is good news given that these reliefs are estimated to be worth over £2bn a year to the sector.
Creative industry tax reliefs
There was a sunset clause included in the Museum and Galleries Tax Relief legislation that meant that the relief was due to come to an end on 31 March 2022. Thankfully, the relief has been extended for two years until 31 March 2024. This gives the sector more time to demonstrate how valuable the relief is. Importantly the tax relief available for expenditure incurred between 27 October 2021 and 31 March 2023 has been doubled. The rate will reduce during the year ended 31 March 2024. This will help Museums and Galleries to fund the development of new exhibitions to attract visitors following the Covid lockdowns.
The doubling of tax relief was also extended to Theatres and Orchestras and this will increase the relief that production companies can claim to encourage the production of more high-quality productions.
In order to better target the reliefs and ensure that they continue to be safeguarded from abuse, changes to the legislation will take effect for companies entering production from 1 April 2022. It is said that this will include making it easier for a touring museum and gallery exhibition production company to claim relief for touring. Further details are awaited.
National Living Wage
In the days before the Budget, we learned that the National Living Wage would increase by 6% to £9.50 from 1 April 2022. This will have an impact on the wage bills for charities and therefore will need to be budgeted for and included in funding bids going forwards.
Health and Social Care Levy
Announced in advance of the Budget, the Government decided to raise revenue through 2 means; a new, UK-wide 1.25 percentage point increase to National Insurance Contributions (NICs) and an increase in the tax individuals will pay on dividends.
The increase to NICs will affect employees and employers alike and therefore charities need to understand what the impact of this will be on their costs so that they can ensure that the costs can be funded.
The changes will commence with transitional provisions on 6 April 2022 which will amend the headline NIC rates for one year as follows:
- Employees – from 12%/2% to 13.25%/3.25%
- Employers – from 13.8% to 15.05%
- Self-employed – from 9%/2% to 10.25%/3.25%
From 6 April 2023, the NIC rates will revert to current levels and will be replaced by what will be known as the “Health and Social Care Levy” which will be charged at 1.25%. This will be applicable to employees, employers and the self-employed.
VAT reduced rate for tourism and hospitality
The reduced VAT rate for tourism and hospitality businesses increased to 12.5% from 1 October 2021 and this will apply until 31 March 2022. From then on the standard rate will apply again. Charities and trading subsidiaries that operate in these sectors need to ensure that their VAT systems are up to date to take account of the changes.
It was announced that legislation will be amended to reflect HMRC’s current position that their “discovery” assessing powers enable them to recover certain tax charges which include the tax on Gift Aid Donations. The rules will apply retrospectively and do not create any new or additional obligations or liabilities for taxpayers. The amendments are intended to clarify the legislation to ensure the rules work as designed and intended.
A reminder that HMRC has announced that MTD will be extended to all VAT registered businesses for returns commencing from 1st April 2022 onwards. Currently, MTD is not mandatory for businesses that are registered for VAT on a voluntary basis.
Late filing penalties
HMRC announced last year a change to the penalty regime for VAT registered businesses who are late filing their VAT returns and paying the tax due.
The new system will be more complex than the existing Default Surcharge system, in that there will be separate penalties for:
- late submission; and
- late payment, plus interest.
However, the new regime should avoid some of the harshest impact of the old regime, whereby the same penalty is applied whether a payment is one day late or is one year late.
For each return submitted late a business will receive a point which will be removed after a period of time depending on compliance.
Penalties will not be levied until 4 points have been accrued and then an initial penalty of £200 will be charged.
If tax is still unpaid 15 days after the due date a penalty of 2% of the outstanding tax will be charged.
If you’re unsure of how the Budget will impact you, speak to a member of the team today!