Finance Update: VAT Guidance

Our VAT Helpline provider Crowe has published some guidance on VAT which may be useful.

At the end of March, our VAT Helpline provider Crowe UK LLP published insights on common trading activity VAT issues for charities in 2021. The following are a couple of the key topics flagged that we thought would be of particular interest to colleagues in the network, whether you are VAT registered or involved in VAT-exempt/non-business activities that also undertake trading activities such as sales from charity shops, cafes and other social enterprise activities.

VAT Issues:
  1. Donated Goods Retail Gift Aid Scheme and VAT

    The Retail Gift Aid scheme is used by many charities in order to treat what would have been the sale of donated goods as donations of cash by acting as agent for the owners in selling their goods. This enables the charity to be able to claim Gift Aid.  

    It is important to note, that from a VAT perspective, this changes the nature of the transaction entirely. If donated goods are sold, the shop is making a zero-rated taxable business activity which enables VAT recovery on associated costs. Whereas, if a charity is selling goods on behalf of someone in return for a donation, this is a ‘non-business activity’ and so while there is no VAT due on the donation, VAT cannot be recovered on the associated costs.  

    This can result in the shop being required to apply an apportionment to arrive at the correct amount of VAT recoverable in relation to the shop costs so VAT administration increases and VAT recovery is reduced.

    Solution: To properly operate the scheme, the charity should charge a VAT bearing commission to the donor of the goods. This does mean a small amount of VAT being paid to HMRC but VAT on associated costs incurred on the shops can be recovered in full.

    Further note on donated goods: Please note that the zero-rating can only apply to donated goods sold in their current state and some repair works/painting would be allowed. Where items are ‘upcycled’ e.g., donated pallets turned into garden storage units, the standard rate of VAT must be applied to sales.

  2. Effect of COVID-19 on VAT recovery rates

    The COVID-19 pandemic has resulted in many charity shops, cafes and social enterprise activities to close temporarily. This could have an impact on the amount of VAT recoverable on overhead costs, particularly where the charity uses an income-based apportionment as the proxy for recovery (e.g., the standard method of partial exemption). This is because taxable income has been reduced while exempt income may have remained constant. For example, care services in general will have continued during lockdown, while shops/cafes and conference venues have remained closed.

    Solution: Apply to HMRC to agree an alternative recovery method for the year. HMRC has released an information sheet which states it will look at these requests sympathetically and has set up a purpose-built inbox to review these applications. We would suggest that charities review their recovery rates to see if there has been, or will be (using a forecast), a heavy reduction input tax recovery so this can be addressed. HMRC’s release can be accessed here.

Should there be sufficient interest from across the sector, Crowe have indicated they will look to record a 10-minute webinar providing more detailed information on this subject. Please register your interest here

Further information

Please contact the Age UK VAT Helpdesk on 0207 842 7499 or AgeukVAT@crowe.co.uk or your usual professional contact if you wish to discuss any of the above issues further.

Shared with thanks to Crowe UK LLP.

Are you ready for Phase Two of Making Tax Digital on 1 April 2021?

Phase Two of Making Tax Digital (MTD) for VAT goes live from 1 April 2021, Crowe LLP have a two-level offer of support which may be of interest to Partners.

Phase Two of Making Tax Digital (MTD) for VAT goes live from 1 April 2021. Feedback from Crowe UK LLP, our VAT Helpline Support Provider, indicates that many organisations are unclear about how the rules impact on them, and whether they will be compliant. They are seeing an increased appetite to review current VAT return processes and to provide recommendations on how organisations can be compliant with the new rules. To this end, they have pulled together the following two level offer (fees will be payable) which may be of interest to partners in the network who feel they need some additional help and support with this.

  1. A standard MTD review to check if there are any risks of non-compliance to the MTD rules, detailing specific rules which would apply to your circumstance and comments on simple solutions for digital links; and
  2. An enhanced MTD review, which will include a full remote review of the latest VAT return workings to identify specific areas where there is exposure to non-compliance of the MTD rules and consideration of alternative methods of preparing MTD compliant VAT returns.

Further details can be found in the document below:

Should you wish to discuss this proposal or if you have a general query about Making Tax Digital, please contact the Age UK VAT Helpdesk on 0207 842 7499 or AgeukVAT@crowe.co.uk.

Please note: you are under no obligation to use Crowe UK LLP to undertake an MTD review. Our aim is to encourage the network to seek accredited professional advice as and where required to support them in this and other VAT matters.

Making Tax Digital Guidance

Guidance on preparing for the “Making Tax Digital for VAT” period which begins in April 2021.

Further to the recent VAT session at the Finance Network Meeting held in January, we thought it important to highlight that local partners need to be prepared for the Making Tax Digital (MTD) for VAT ‘hard landing’ period from April 2021. Additional Making Tax Digital for VAT (MTD) requirements will take effect from Thursday 1 April 2021. When HMRC first announced MTD, it was a two-phase process.

  • Phase one: The first phase was considered a ‘soft landing’ period and came into effect from April 2019. Under phase one, businesses with an annual turnover of more than the registration threshold of £85,000, were required to submit their VAT returns electronically.
  • Phase two: The second phase was initially planned for April 2020, however, due to COVID-19 it was delayed for a year and will apply for VAT periods starting on, or after, Thursday 1 April 2021.

Crowe UK LLP has put together an alert on the important aspects and changes to MTD which companies need to be compliant with for the imminent end to the ‘soft landing’ period and start of the second phase, including:

• what is changing from Thursday 1 April 2021?
• digital links and phase two compliance
• compliance when using advisors and accountants.

For further information to ensure your processes are MTD compliant please click here.

They are also providing a free webinar on Monday 22 February 2021 from 14:30 – 15:30 where their VAT specialists will be covering all the important information to make sure you’re prepared for the end of the ‘soft landing’ period. You’ll also be able to take part in a live Q&A.

For any additional support, please contact the VAT helpline on 0207 842 7499 or email AgeukVAT@crowe.co.uk.

February Finance Network Meeting

On 24th February, we are holding the next virtual Finance Network Meeting on Teams, from 11:00 until 12:30, to which we warmly invite all Finance Directors, Heads of Finance Department and Finance Managers, together with CEOs, Treasurers and other interested trustees.

The topic will be ‘Forecasting in a time of uncertainty’ which has surely never been more relevant than now, given the ongoing pandemic restrictions and the fact that despite the encouraging progress of the vaccination rollout, we still have no clear timescale or understanding of how we will all begin to emerge from the present lockdown measures. Just how do you forecast when there are so many unknowns?

The session will be led by Stuart Walker, a charity accountant commissioned by Cranfield Trust and we’re looking forward to a very interesting presentation. It will include a Q&A session, so please be ready for the opportunity of asking ‘live’ questions.

To secure your place in this meeting, please email either John.Fox@ageuk.org.uk or David.Chenery@ageuk.org.uk as soon as possible. We will send you the link to the meeting nearer the time.

Free charity governance and management events

Buzzacott and Stone King have a whole set of free events for managers and trustees in 2021.

Buzzacott and Stone King are running free events for managers and trustees during 2021. Each event covers a different topical subject, explained by our relevant specialists. These include: accounting for non-accountants, providing trustee training, breaking down the latest VAT and tax rules for charities and not for profits and more. Click here to find out more.

Book your place at the Virtual Finance Network Meeting

Age UK’s Financial Resilience Team are hosting a Virtual Finance Network meeting on 27th January. Find out how to book your place.

On Wednesday 27th January, we are hosting a Virtual Finance Network meeting (from 11:00 to 13:00) which will include a key presentation from Crowe UK LLP, a leading audit, tax, advisory and risk firm, which manages our Age UK VAT Helpline. Full details can be found in the article below. To book your place please email john.fox@ageuk.org.uk and david.chenery@ageuk.org.uk.

This meeting will cover a range of current VAT topics:

  • Business/non-business and partial exemption – the partial exemption year for 20/21 is going to be very different and VATable income will have taken a steep downward turn, reducing the overhead VAT recoverable.
  • Knowing when NOT to pay VAT on certain purchases
  • Paying deferred VAT – options and practicalities
  • Making Tax Digital – phase 2 roll out and much more. All businesses, even those voluntarily registered, will need to submit digitally from 2022

The meeting will also include the Network Infrastructure Programme where colleagues will share a brief update on their various key workstreams and other work in progress. In particular:

  • The new accounting system build with Age UK Coventry & Warwickshire, using Microsoft Dynamics Business Central with the Microsoft Partner, Total Enterprise Solutions (TES)
  • The Charitylog links to finance

Time permitting, there will also be an opportunity to raise other finance questions and share common challenges and good practice. If there are any other specific topics you would like to discuss on the day, please raise them prior to the meeting by email to john.fox@ageuk.org.uk and david.chenery@ageuk.org.uk. We will endeavour to accommodate them or to include them in the February meeting which will focus primarily on financial planning for 2021-22 and consider how to approach a potential ‘new normal’ (date yet to be agreed).

To book your place for the 27th January meeting and enable us to send you the meeting link, please email john.fox@ageuk.org.uk and david.chenery@ageuk.org.uk.

Webinar on the latest VAT news affecting Non Profit organisations

With many changes to VAT in recent months, this free webinar on Thursday 22nd October will discuss the specific areas impacting Non Profit organisations.

There has been much activity in the world of VAT in recent months. As we begin to navigate a post-COVID world, and with a renewed focus on Brexit, Crowe is holding a Charity VAT update to discuss the specific areas impacting Non Profit organisations. There is some good news, and opportunity for potential VAT claims, but also some upcoming changes to be aware of and plan for.

This free webinar will take place on Thursday 22 October 2020 from 2pm – 3pm, and it will cover a mixture of topics, including:

  • VAT update (what’s happened recently)
  • digital advertising and the opportunities for claims
  • extension to the due date for paying deferred VAT
  • temporary 5% reduced rate (now extended until March 2021).
    In the pipeline
  • Making Tax Digital – preparing for the ‘hard landing’ from April 2021
  • construction reverse charge – understanding your obligations
  • buying goods from the EU post Brexit – what will change?

To register, please click here.

Hospitality VAT at 5% – Considerations for non-profits

With VAT cut to 5% on certain hospitality supplies, find out what this means for non-profit organisations through guidance from Crowe LLP – including a free webinar.

The recent government announcement of the introduction of a temporary rate on VAT seeks to stimulate the hospitality industry, with a cut in the VAT rate from 20% to 5% on certain supplies, until 12 January 2021. However, the legislation and accompanying guidance is somewhat brief, and lacks the detail to assure affected tax payers as to whether or not they are complying correctly with these latest changes.

What is not covered by the temporary 5% rate in some cases is clear, such as the sale of alcoholic drinks, but much remains unclear.

See Crowe’s latest insight highlights which describe some of these areas of confusion and key points to consider, including questions around:

• catering
• tax points
• vouchers
• anti-forestalling.

Read more in the full insight here

Webinar: Hospitality VAT at 5%

Date: Thursday 13 August 2020 from 11:00 – 12:00

Join the Crowe live webinar where these 5% uncertainties will be discussed in more detail. You can submit any questions in advance through the registration page.

Who should attend: anyone who deals with VAT in your organisation. If you have colleagues or contacts that you think would benefit from attending, please share this invitation with them.

Cost: there is no cost to attend this webinar.

To register, click here.

VAT rate reduction to 5% for hospitality sales – how it affects non-profits

The Chancellor’s “Plan for Jobs” initiative will see the rate of VAT for many supplies in the hospitality area reduced from 20% to 5%. Find out what that means for non profits.

Last week, the Chancellor announced that the rate of VAT which applies to many supplies in the hospitality area, will be reduced from 20% to 5%. This is part of the wider ‘Plan for Jobs’ initiative, which aims to support businesses bounce back from the impact of the Covid-19 pandemic.

The reduced rates of VAT will come into effect from Wednesday 15 July 2020 and continue until Tuesday 12 January 2021.

Please read the guidance below to find out more and consider how your organisation could benefit from this:

Expressions of Interest for the Tampon Tax Fund – Deadline May 13th

There’s still time to express interest in being part of Age UK’s Tampon Tax Fund application. The deadline to submit expressions of interest is Wednesday 13th May.

Thank you to all the local Age UKs who have expressed an interest so far in being a part of Age UK’s application to the Tampon Tax Fund. This fund aims to support projects that improve the lives of vulnerable and disadvantaged women and girls. We will be applying to run a physical activity programme which is focussed on supporting older women who are vulnerable or from excluded groups to be more active. Please note the deadline to complete the expressions of interest form is Wednesday 13th May.

Being active is beneficial to our physical and mental health at any time, and given the Coronavirus crisis and the current restrictions placed on the lives of our older people, being active has never been more important. We know that activity levels will have plummeted, and many older people are experiencing prolonged periods of isolation and loneliness.

This fund provides an exciting and crucial opportunity for the local Age UK network to provide tailored opportunities for older women to re-engage and re-connect with their communities, families and friends through physical activity when this is over. Activities could range from Nordic walking, belly dancing, Zumba to Walking Football- whatever you think your community would enjoy.

We will partner with Women in Sport and Sporting Equals to explore the barriers that these groups of women face have faced in being physically active throughout the crisis, and will support local partners to co-design activities that will be of interest to, as well as engage and sustain, older women’s participation in the longer-term.

We are inviting Expressions of Interest from local partners who are interested in being part of the Age UK application. We are looking for up to 20 local Age UKs, in a range of areas across the country, representing different regions and urban and rural communities, who could deliver this programme in partnership with Age UK. Local partners wishing to submit a joint application are also welcome. Each successful application will receive a grant of up to £30,000 per annum for two years (up to £60,000 altogether).

With the current circumstances, we can only give an estimated timeframe on the delivery period. The hope is that the project will run for two years from Summer 2020 until June 2022, but this will be adjusted to adhere to the government guidelines around coronavirus and when we are confident the programme can go ahead safely and effectively.

If you would like to find out more information, then please click here and to complete an Expression of Interest form click the following link – new application.

To resume and submit a saved application then please use this link – saved application.

Please note the deadline to complete the form is Wednesday 13th May.

For any questions please contact Áine Moran, Project Manager, on aine.moran@ageuk.org.uk.

Expressions of Interest for Tampon Tax Fund

Age UK will be applying to the Tampon Tax Fund and are inviting expressions of interest from local Age UKs to be part of the application.

Age UK will be applying to the Tampon Tax Fund which aims to support projects that improve the lives of vulnerable and disadvantaged women and girls. We will be applying to run a physical activity programme which is focussed on supporting older women who are vulnerable or from excluded groups to be more active.

Being active is beneficial to our physical and mental health at any time, and given the Coronavirus crisis and the current restrictions placed on the lives of our older people, being active has never been more important. We know that activity levels will have plummeted, and many older people are experiencing prolonged periods of isolation and loneliness.

This fund provides an exciting and crucial opportunity for the local Age UK network to provide tailored opportunities for older women to re-engage and re-connect with their communities, families and friends through physical activity when this is over. Activities could range from Nordic walking, belly dancing, Zumba to Walking Football- whatever you think your community would enjoy.

We will partner with Women in Sport and Sporting Equals to explore the barriers that these groups of women face have faced in being physically active throughout the crisis, and will support local partners to co-design activities that will be of interest to, as well as engage and sustain, older women’s participation in the longer-term.

We are inviting Expressions of Interest from local Age UKs who are interested in being part of the Age UK application. We are looking for up to 20 local Age UKs, in a range of areas across the country, representing different regions and urban and rural communities, who could deliver this programme in partnership with Age UK. Local Age UKs wishing to submit a joint application are also welcome. Each successful application will receive a grant of up to £30,000 per annum for two years (up to £60,000 altogether).

With the current circumstances, we can only give an estimated timeframe on the delivery period. The hope is that the project will run for two years from Summer 2020 until June 2022, but this will be adjusted to adhere to the government guidelines around coronavirus and when we are confident the programme can go ahead safely and effectively.

If you would like to find out more information, then please click here.

To complete an Expression of Interest form click the following link – new application.

To resume and submit a saved application then please use this link – saved application.

Please note the deadline to complete the form is Wednesday 13th May.

For any questions please contact Áine Moran, Project Manager, on aine.moran@ageuk.org.uk.