Charities SORP (FRS 102) Information Sheet 2 published
In January 2019, ‘Charities SORP (FRS 102) Information Sheet 2: Accounting for Gift Aid payments made by a subsidiary to its parent charity where no legal obligation to make the payment exists’ was published. Information sheets allow the joint SORP-making body to clarify the application of the SORP or of particular recommendations contained within the SORP.
‘It aims to provide guidance on the requirements of FRS 102 and the recommendations of the SORP related to this issue and suggest possible solutions for the implementation and disclosures of these changes.’
The guidance and examples focus solely on the situation where there is no legal obligation for the subsidiary entity to make a Gift Aid payment to the parent charity and focus only on the impact on the subsidiary.
Changes to probate fees delayed
Changes to probate fees (the cost of administering a deceased person’s estate or Will) have been delayed from the proposed introduction date of 1 April 2019 as the government is preoccupied with ‘other parliamentary business’. Historically the fees have been chargeable at a ‘flat rate’ but the government wants charges to be linked to the size of the estate. It is expected that this change will now be debated in the House of Commons.
Four umbrella bodies, IoF, Remember a Charity, Institute of Legacy Management (ILM) and National Council for Voluntary Organisations (NCVO) have warned that the proposed changes to probate fees could reduce legacy income available for charities by £10 million. These bodies have requested that probate fees for estates and Wills that include legacy gifts be reduced and requested a meeting with the Ministry of Justice to consider this issue.
A letter from Lucy Frazer, Parliamentary Under-Secretary of State for Justice, stated that the changes have been delayed but that the government planned to press ahead, though did not give a timescale. She also indicated that the changes would not affect the charity sectors’ income:
“I want to reassure you that the fees for these estates will never amount to more than 0.5 per cent of the value of the estate”.
VAT zero-rate certificates on charity buildings
Two recent cases regarding the issue of VAT zero-rate certificates for charity buildings have highlighted the danger of assuming that the zero-rate of VAT will apply. Both the Upper Tribunal (UT) case of Greenisland Football Club (GFC) and the First Tier Tribunal (FTT) decision of Marlow Rowing Club may point to a hardening of HMRC’s policy with regard to penalties issued for incorrect certificates.
The case of GFC related to a penalty issued by HMRC for the incorrect issue of a zero-rate VAT certificate. HMRC contended that GFC had wrongly issued the certificate to a contractor who supplied construction services in respect of a new clubhouse. GFC argued that the building works were correctly zero-rated as the intended use of the building, was as a village hall, providing social or recreational facilities to the local community.
The FTT allowed the appeal and confirmed that if its decision was wrong then GFC would have a reasonable excuse for issuing the zero-rate certificate and the penalty should be withdrawn. The case went to the UT which overturned the FTT’s decision on the liability of the works, holding that the FTT had applied the wrong tests. However it refused to uphold the penalty because it accepted the charity’s defence that the certificate was issued after careful and reasonable consideration by the trustees as they had contacted its advisers who gave verbal advice that the building would be zero rated.
HMRC argued in court that all charity trustees must seek an HMRC determination before issuing a certificate. This is inconsistent with published HMRC guidance which states that the decision of trustees will be accepted where either they seek professional advice or a determination from HMRC is sought.
In contrast, the Marlow Rowing Club had a similar penalty upheld and the issue of the certificate was deemed ‘careless’. In this case the Club had obtained detailed opinions from a QC and accountants confirming the possibility of zero-rating, subject to developments in case law.
Contact us for the latest advice in this area especially when considering projects where zero-rating might apply.
Charity tax update
From 6 April 2019, the following changes apply:
Gift Aid Small Donation Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS limit is raised to £30 from £20.
Small trading exemption limits have increased for charities from £5,000 per annum to £8,000. Where the turnover is greater than £5,000 (rising to £8,000), the limit is increased to 25% of the charity’s total incoming resources, subject to an overall upper limit of £50,000 (rising to £80,000).
Gift Aid Retail Scheme rules allowing charity shops using the scheme to send letters to donors every three years (rather than every tax year) when their goods raise less than £20 a year.