Jo Bartlett, Charities & Not for Profit Manager, Broomfield & Alexander

One of the recurrent complaints by charities is that they have to incur VAT like commercial bodies; but since many of their activities do not allow the recovery of this VAT, it leads to an additional cost in the charity. An announcement in the Chancellor’s autumn statement indicates that there may be some relief on its way, in the form of a proposal to introduce a cost-sharing exemption into UK legislation.

This could specifically benefit charities that outsource ‘back office’ functions such as HR and IT, here there is often a significant VAT charge that the charity may not currently be able to recover.

The exemption will be introduced in 2012 and will apply to such services shared between bodies making exempt and/or non-business supplies, including charities. The idea is that these bodies can come together to set up a ‘cost-sharing group’ (CSG), which can provide those services to its members exempt from VAT.

Although the CSG’s own VAT costs will be irrecoverable, its members can still benefit since there will be a saving of VAT on the recharges, such as for staff costs, made by the CSG.

Conditions include the requirement that CSG services must be directly necessary for the exercise of its members’ exempt or non-business activities, they must be supplied at cost and use of the exemption must not cause or are likely to cause distortion of competition.

HMRC have published draft legislation but, until detailed guidance is developed, the exact interpretation of how CSGs have to work in order to satisfy these conditions is not clear. However, interested parties may wish to start considering whether forming a CSG could be of benefit.

Liz Maher of Centurion VAT is looking for comments to include in the consultation on  the proposed VAT Cost Sharing Exemption- view her thoughts and comments here.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on finance in the charity and the third sector and other business and financial topics, or by simply registering for our monthly newsletter

Jo Bartlett, Charities & Not for Profit Manager, Broomfield & Alexander

On December 21, 2011 the Charity Commission published an update to its guidance on public benefit. This followed the decision, on October 14, 2011, of the Upper Tribunal Tax and Chancery Chamber in relation to private fee paying schools with charitable status and the public benefit requirement.

To be charitable an entity must have aims which exclusively fall within the definition of Charitable Purposes in section 2 of the Charities Act 2011 AND the poor must not be excluded from benefitting.

It is the responsibility of the Trustees to ensure their objects are pursued so as to provide public benefit and that the poor are not excluded. If they fail to do this then it is the Trustees who are in breach.

There must be more than a de minimis or token benefit for the poor. There are three types of benefit:

Direct, which is a benefit from the main service of the charity; Indirect, which is a benefit that is received other than by the main service; and wider, which are benefits received by the community at large.

Other activities would be taken into account as part of the public benefit requirement. For a fee charging school these may include:

• The provision of scholarships and bursaries

• Sharing of facilities (including teachers) with local state schools

• Sharing of other facilities such as playing fields, pools or sports grounds

Although the tribunal emphasised that the scope of its decision was limited to educational charities, the principles in relation to the public benefit requirement will have a broader relevance to other fee charging charities.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on finance in the charity and the third sector and other business and financial topics, or by simply registering for our monthly newsletter

Alison Love, Alison Love Ltd

I recently went to see the film The Artist  (I know everyone else probably saw it ages ago and  I am a bit behind the times). I was not quite sure what to expect, particularly with all the hype, however it is one of the best films I have seen in a long time. I was totally captivated throughout the whole movie, quite some feat given that there are very few spoken words.

This got me thinking about how much can be conveyed and communicated without speech and about how much of what we communicate is so much more than the words we speak.

This is important in a workplace conflict or mediation context where it is necessary to understand the needs and interests of the parties. The issues in dispute in a workplace conflict are the real tip of the iceberg, it is what lies beneath that is important. The real issues relate to how people engage and interact with each other and how they are feeling and reacting to this is important for both parties to understand.  This does not mean that the parties have to agree or accept the others position but they do need to gain an understanding of the others perspective.

To gain this understanding it is necessary to listen to what is beneath the words, to look for clues in an individuals demeanor, gestures, body positioning, facial expressions, eye contact and also tone of voice.  Some studies suggest that 93% of our messages are conveyed by tone of voice and facial expressions and 7% by the words spoken. It is clear that we express our emotions and attitudes more non-verbally than verbally so the nonverbal clues are vitally important to understanding the underlying issues.

Real, deep listening is hard and takes some effort. Listening to the words is hard enough in itself but to listen to all the emotions and feelings is even harder.  It requires sustained and full attention without letting your mind wander as to what’s for tea tonight or what your next question is. Multi tasking is not an option here and even taking the briefest of notes can distract you from what is being communicated. The skill of the mediator or conflict coach is to listen empathetically and to then to reflect back what is being communicated between the parties in an appropriate way and so that their understanding of  each others perspective is deepened.

In the Artist there was the benefit of atmospheric music, lighting and the artistic composition of scenes, (and a very cute dog) which are not available in a normal interactions with individuals. Without these clues it is even more important to engage in deep empathetic listening; a vital skill for anyone involved in dealing with workplace conflict either as a line manager, HR professional, conflict coach or mediator.

For more information about how to gain the skills needed to manage difficult people or conflict situations (including coaching support and training courses) please visit my website at www.alisonlove.co.uk.

Alison Love will be holding breakfast seminars in Swansea and Cardiff on the 18 and 24 May, From Conflict to Collaboration; a win-win for all your relationships – for more information or to register to attend, please click here.

Leighton Reed, Director, Broomfield & Alexander

From 6 April 2012 HMRC can exercise new powers that will allow them to require a cash deposit or a bond, which can be cashed on demand, from certain employers where it is considered there is a real risk that they will not pay their PAYE and NIC liabilities.

HMRC have said that this will not affect the vast majority of employers who pay their tax on time, nor will it affect employers who are in genuine financial difficulties. Employers who may be affected include:

• Employers that deliberately choose not to pay.
• ‘Phoenix’ businesses that cease trading and then re-emerge in a different guise.
• Employers who build up large PAYE or NIC debts, and
• Employers who ignore HMRC attempts to contact

Readers may find the following comments from HMRC’s website useful:

HMRC will calculate the amount of the security on a case by case basis – depending on the amount of tax at risk, the previous behaviour of the employer and other risks. Those being required to pay a security can appeal against this decision.

As with VAT, if an employer fails to provide the security for PAYE or NICs, HMRC can prosecute them. The sanction is a fine, not a custodial sentence.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Leighton Reed, Director, Broomfield & Alexander

If you leave at least 10% of your net estate to a recognised charity this may reduce the amount of Inheritance tax paid by your estate to 36% instead of 40%.

The following notes explain some of the factors that need to be taken into account.

1. The net value of your estate is the value of your taxable assets less qualifying debts, exemptions, nil-rate band and any other reliefs or liabilities.
2. A qualifying charity is one recognised by HMRC that has been granted a charity reference number.

If by chance your IHT planning does not qualify your estate for the 10% rate reduction, your beneficiaries can arrange an instrument of variation to increase charitable donation to an appropriate level.

Needless to say the rules are complicated in all but the simplest circumstances so do talk to us if you want to introduce this feature into your estate planning.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Leighton Reed, Director, Broomfield & Alexander

HMRC have at last woken up to technological advances in recent years, and in particular, to the so-called smart phones.

Until recently HMRC decreed that smart phones were not mobile phones and therefore subject to tax as a benefit in kind. Users of iPhones, Blackberries and other “Android” devices, who have suffered a benefit in kind charge in recent years, can now reclaim any tax paid. Claims can be backdated to the tax year 2008/09.

In order to be considered a tax free benefit, the smart phone contract must be between the employer and the phone operator. As with mobile phones there is no restriction or tax charge if private calls are made.

This change of tack by HMRC does not apply to tablet devices such as the iPad.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Leighton Reed, Director, Broomfield & Alexander

Most VAT registered traders will be aware that you cannot reclaim the VAT when you buy a car. The only exceptions are businesses that use cars directly to generate income: for example a taxi firm.

The VAT position of motor expenses for cars owned by the business is slightly more complex.

Fuel
As most business cars are used for private as well as business purposes you are only entitled to effectively claim back the VAT on the business use. Registered traders therefore have four choices:

1. Reclaim all the input tax on fuel purchases and pay a car scale charge as output tax to HMRC to cover private use. The amount of the scale charge depends on the CO2 emissions of the vehicle.
2. Keep mileage records that show business and private use and apportion your claim for input tax on fuel.
3. Rather than the apportionment method (2 above) it is possible to use HMRC’s published fuel rates per mile to calculate the VAT input tax included in fuel costs. To do this multiply business mileage by the appropriate fuel mileage rate and apply the VAT fraction (1/6).
4. Elect to make no claim to recover input tax on all fuel for mixed use vehicles. You would do this if the output tax scale charge at 1 above is more than the input tax recoverable or if you don’t keep the mileage records as set out in 2 above. Please note that if you choose this option you must apply it to all vehicles (including commercial vehicles).

Car repairs and servicing
As long as the car is owned by the business and the costs are paid for by the business all the input tax can be recovered. The only exception if is a car is never used for business purposes in which case no VAT can be reclaimed.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Jane Mellor, Personal Tax Manager Broomfield & Alexander

Apparently, 60% of pensioners are unaware that their State Pension is taxable income. Historically this assumption is probably based on the way in which their pension is paid without deduction of tax. This may be about to change!

The Office of Tax Simplification has come up with an idea to streamline the taxation of pensioners. They are seriously considering bringing the State Pension into the pay-as-you-earn system.

If this happened HMRC would issue a code number to the Department of Works and Pensions who would calculate any tax due and deduct it before making the net of tax payment to a pensioner’s bank account.

If you have no other income apart from your State Pension you are unlikely to be affected. However, if your personal allowances are already used against other income (including other pensions) you would likely suffer a tax deduction. No change is proposed before April 2013.

How likely is this change? We will have to wait and see…

Overall, moving the State Pension into the PAYE system will not affect pensioners’ total tax liabilities. What it may affect, initially, is the timing of tax payments. At present any tax that should have been paid will be collected through the self-assessment process. Any arrears for each tax year will need to be settled the following January. So any tax underpaid in 2011/12 would have to be paid 31 January 2013. If PAYE is applied to the State Pension from April 2013, pensioners may be faced with budgeting to clear any arrears for the tax year 2012/13 in January 2014, from a reduced monthly income. This of course will be a one-off issue.

If you are a basic rate tax payer and your tax allowance is set off against other earnings or pensions, your weekly State Pension will be reduced from £107.46 (the present weekly rate) to £85.96.

If you pay tax at 40% and your tax allowance is set off against other earnings or pensions, your weekly State Pension will be reduced to £64.47.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Liz Maher, Director Centurion VAT

Our regular guest contributor, Liz Maher of Centurion VAT discusses the proposed VAT Cost Sharing Exemption.

It seems a long time in coming since it was announced in the Autumn Statement 2011  but Centurion now have sight of the Draft proposals for the introduction of this new VAT exemption for qualifying recharges, between a shared service centre and its members, to benefit from a VAT exemption treatment rather than a taxable VAT treatment. Comments about “my horse could have had a foal in same time” from me are being ignored by the rest of the Centurion team!

The draft proposals are open for consultation until the 18^th May and Centurion are happy to consolidate any comments from interested parties on the plans for implementation of this VAT exemption or if you’d like to discuss the proposals as the details of its working are becoming clearer (or less opaque!).

What is clear is that the intention is that exemption will only to apply to recharges for services from a shared services consortium that meets the criteria set out in the proposals. We are pleased to report that as a result of feedback from the consultation process there has been a widening of the definitions being applied which should allow more bodies particularly in the charity sector to benefit should a shared service consortium approach look like a valuable tool to have in the cost management tool kit.

The key issues to look at include:

• HMRC’s definition of an “independent group of persons” for the Cost Sharing Group (CSG)
• All CSG members must carry on exempt or non business activities
• HMRC’s definition of “ directly necessary” supplies to members that qualify for the VAT exemption treatment
• Direct re imbursement of costs condition to be applied by the CSG to its members
• Distortion of competition condition that the CSG could be open to from commercial operators

It’s clear that these arrangements will not be the “silver bullet” that sectors such as charities, housing associations, universities across Wales might have initially hoped that it would be, but there is still enough of flexibility in the proposals to make this a serious option to consider where critical mass can be achieved to deliver volume savings: Areas such as maintenance services across the housing association sector perhaps? – and the cost sharing group doesn’t have to restrict itself to groups of entities from the same sector; local authorities could join with charities or with housing associations for a commonly incurred service cost as well.

The proposals can equally apply to the business sector, of course, but those businesses would have to have significant levels of exempt business activity to meet the qualifying conditions but in other European States businesses in the health and insurance markets do take advantage of the relief that the legislation brings to the burden of VAT on their costs so perhaps businesses in the property, exempt training sector, welfare, betting and gaming sectors should at least be aware of the potential this change could yield.

Any responses to this draft proposal will need to be back in with Policy Division in HMRC by the 18^th May.

Centurion will be including the topic for our VAT Forum for FD’S in the Welsh Housing Association Sector to be held on 15 May at ESIS Nantgarw and at our Annual Forums for Welsh Universities and Further Education Colleges held in June.

If you’ve not had sight of the Draft Proposal from HMRC as it currently stands give me a call 01633415390 or send me your comments liz.maher@centurionvat.com for inclusion in our response to the proposal by the 17^th May.

Liz Maher,  Centurion VAT Specialists Ltd

www.centurionvat.com

Follow VATbat on Twitter

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on finance in the charity and the third sector and other business and financial topics, or by simply registering for our monthly newsletter