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Charities Update

BHP’s Jane Marshall, Rachelle Rowbottom and Simon Buchan bring you the latest news and views from the Charity Sector

Cabinet Office launches £20m Local Sustainability Fund following delay 

The Office for Civil Society has announced the launch of its £20m Local Sustainability Fund, which will offer grants between £20,000 and £100,000 to around 250 small and medium-sized businesses.

While the minister for civil society, Rob Wilson, said the Local Sustainability Fund would play an important role in building a ‘truly compassionate society,’ the move has come under scrutiny for a number of reasons. The fund itself has taken 15 months to deliver, is half the size of the originally mooted £40m and the fund’s application window has been criticised.

Wilson explained the halving of the initial figure, saying ‘£40m was an indicative figure, it was never a pledge… obviously we are going through a period of rebuilding the economy,’ whilst going on to praise the move for providing the skills and expertise beyond the financial support the grants will offer.

While the announcement was met with a generally positive response, there has been a little scepticism with the application window labelled ‘ridiculously short’ by Jay Kennedy, director of policy and research at the Directory of Social Change. He said ‘It isn’t good practice particularly because it will take some time for the information to filter down to organisations and for them to decide if they are eligible, let alone to consider the different elements that they will have to bring together to develop a successful bid.’ Kennedy suggested extending the deadline to at least 8 or 12 weeks.

Other reactions from within the sector include Sir Stephen Bubb, chief executive of Acevo, who said the money would be ‘welcomed’ despite the halved fund while hoping ‘there is more to come,’ and Neil Cleeveley, chief executive of Navca, said: ‘I am relieved this fund is finally being launched… the support provided needs to have a legacy that outlasts the funding.’

 

ChA1 – HMRC Charity Application Process Moves Online 

Although charitable organisations will be registered with their respective regulatory bodies as necessary, HMRC also requires such organisations to apply to them for registration as a charity for tax purposes.  Once accepted, the organisation will receive valuable tax reliefs.  In addition, the requirement for tax returns to be submitted annually, will, in most cases, be removed. Following the introduction of online filing, our experience is that tax returns are being requested from charitable organisations every three to five years.

Until recently, the application process was completed using a paper ChA1 form, however from 3 June 2015, the application process has moved online and can be found at: https://www.gov.uk/charity-recognition-hmrc.

Any member of our charities team would be more than happy to help with any queries you may have, whether it be to determine if an application is required or concerning the application process itself. Please get in touch with one of our experts if you have any questions.

Charity VAT Case Update  

University of Cambridge – VAT on Investment Fees 

The facts of this case are relatively straightforward. The University has an endowment fund which invests the money in a range of securities using professional fund managers who charge VAT on their services. The income from the fund is used to support the University’s activities which comprises a mixture of VAT exempt education services and taxable (VAT-able) business activities.

Investing money is a non-business activity and the question before the tribunal was whether the university could reclaim the VAT suffered on the investment management fees.

HMRC’s view was that the investment management fees were a direct cost of managing the investments and therefore the VAT suffered on these costs was non-deductible. The University argued that because the income from the fund was used to support their business activities the fees should be regarded as an overhead cost with VAT recoverable according to their partial exemption method.

The Tribunal agreed with the University.

The relevance of this decision is that there is an opportunity for charities that incur investment management fees to submit retrospective claims covering the last 4 years. HMRC may still appeal the case to the Court of Appeal, in which case any claims submitted will remain unpaid until the appeal process is finally settled.

 

The North of England Zoological Society “Chester Zoo”

The North of England Zoological Society owns and runs Chester Zoo.

The First Tier Tax Tribunal was asked to consider how much VAT may be reclaimed on the costs incurred in keeping and maintaining the animals – the “animal related costs”.

The Zoo’s income comprises a mixture of VAT exempt admission fees and various taxable supplies, including catering and merchandise income. Consequently the Zoo is partially exempt.

The Zoo operates the standard partial exemption method, including the income from the catering and merchandise activity in its calculations. HMRC considered that the income from the catering and merchandise activity should be excluded from the calculation.

If HMRC is right, the Zoo will have claimed approximately £1.3 million VAT more than it was entitled to.

The arguments are quite complex but in the end the Tribunal found that there was a sufficient link between the catering and merchandising activity and the animal related costs.

In summing up, Judge Jonathan Cannan commented that the animals are “the main event” for visitors, and that the Zoo would “often make a loss” without the income generated through its retail and catering activities, and as such are vital to its function.

He continued: “standing back and looking at the overall picture, it seems to us that in the particular circumstances of the society’s economic activities the animal-related costs have a direct and immediate link to the catering and retail supplies. We are satisfied that economically the animal-related costs are a cost component of the catering and retail supplies”.

This decision is interesting, mainly because the Tribunal rejected HMRC’s narrow views on input VAT recovery. It shows that if HMRC takes a restrictive view of your VAT activity, it is worth considering an appeal if you have alternative arguments.

Unfortunately, this is only a First Tier Tribunal ruling that is only binding on the parties involved. I suspect that, given the principles involved and the amount of VAT involved, HMRC may seek leave to appeal to the Upper Tribunal and therefore the issue may not be resolved for a long time yet.   

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