Charity Faces Unexpected £1M VAT Bill

Keith Fernett, CEO of Caritas Anchor House Homeless charity, has written an article for the ITV news site about a potential £1M VAT bill being levied on his charity by HMRC, as a result of a change of description about what the charity does:

"Caritas Anchor House, based in the London Borough of Newham, provides accommodation and support to more than 230 single homeless people a year, many of whom experience difficulties with mental health, drug and alcohol misuse, domestic abuse and offending.

In November 2014 we began building 25 "move on" flats, designed to help homeless residents achieve a sustainable transition into independent living. This building will also accommodate a suite of training facilities, including e-learning zones, workshop spaces and a training kitchen.

However, HM Revenue and Customs has since changed our VAT treatment after 42 years. 

An additional £1 million in VAT is now due for this vital development, after HMRC determined that our description as a "residential and life skills centre" rather than a "homeless hostel" left us subject to VAT despite no change in our services or client group. 

In essence, we are being penalised for positively and accurately describing our work, having received professional advice that the VAT liability for the development would be only £250,000.

This situation is a serious threat to Caritas Anchor House. The change to our VAT status and the consequent £1 million bill from HMRC is putting the charity, its homeless residents and service users at risk. This is in spite of the numerous benefits we offer to the most vulnerable, and society as a whole.

For every £1 invested in Caritas Anchor House, we deliver savings to society of nearly £4. 

This means that ultimately, HMRC’s demand will cost more than it would secure in taxes. At a time when Government is seeking savings, it needs the likes of Caritas Anchor House. Hopefully this is recognised and a decision is taken not to pursue a tax when it is in no-one’s best interest."

My initial thoughts are that Caritas should first of all take it up with their professional advisers who said that the liability should be around £250K, and focus on why they were advised to change their description and why (after 42 years) this has impacted their VAT bill.

Views and comments welcome.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

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HMRC Shows Mercy

There has been much criticism of HMRC for its perceived/alleged "lenient" stance towards some large corporations wrt tax deals negotiated etc etc.

Disregarding the fairness or otherwise of those criticisms, HMRC does also show some mercy towards organisations that are not mega corporations.

Kids Company, the charity, apparently neglected to pay National Insurance of around £700K in 2003.

Laurence Guinness, director of communications at Kids Company, is quoted by the Third Sector saying that the charity had:

"experienced a delay in making National Insurance payments to HMRC as resources were focused on meeting the immediate needs of a high number of vulnerable children with complex needs who were not receiving statutory support".

Taking pity, HMRC has now waived almost £600K of that debt.


Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

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NAO Spat With HMRC

I recently noted that, according to the National Audit Office, neither the Treasury nor HMRC know whether Gift Aid and other tax reliefs on donations have resulted in more income for charities.

The report has produced a wee public spat between HMRC and the NAO, which took place at a PAC hearing on the subject on 2nd December.

The Committee’s chair, Margaret Hodge, told HMRC’s chief executive Lin Homer and director of counter-avoidance David Richardson that the report showed that the link between gift aid and higher donations was “at best unproven; at worst giving to charity has actually fallen”.

This set the scene for the spat between Homer and Robert Prideaux, director at the National Audit Office, over whether the charity sector agrees that donations have risen over the 13 years since gift aid was introduced.

Homer is quoted by CivilSociety:

“We and the sector are very clear that donations have gone up, that gift aid has had a very positive effect on individual donations."

Prideaux disagreed and said that the NAO consulted the sector for its report and found “no clear evidence that donations in the round are increasing”.

“They are in absolute terms, but this might be down to demographics and population changes.

We have not said in the report that donations aren’t increasing, but there is no clear evidence that they are increasing, and the charitable sector will back this up.”

Margaret Hodge was also unconvinced, telling Homer:

“You have yet to prove that this radical change in 2000 was value for money for the £1bn that has gone to corporations and high net worth individuals as a bribe to encourage them to do more.”

Hodge asked the HMRC executives to name the ten charities that benefit most from gift aid, but Richardson said that he didn’t have that information to hand and wouldn’t name names anyway.

Tax does have to be taxing.

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Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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Does Gift Aid Work?

According to the National Audit Office neither the Treasury nor HMRC know whether Gift Aid and other tax reliefs on donations have resulted in more income for charities.

HMRC has not collected the data which would enable it to conclude how tax incentives since 2000 have affected donor behaviour, or if they have increased the value of donations.

The Head of the National Audit Office, Amyas Morse, said:

"Gift Aid is an important source of income for many charities, worth £1bn to charities in 2012/13. The changes made in 2000 to increase charitable giving resulted in a further £940m of reliefs going to individuals and companies as an incentive to give more money to charity. 

However, the exchequer departments cannot demonstrate that these incentives are working, or that the increased cost to the taxpayer has resulted in a rise in donations to charity."

Unsurprisingly the NAO recommends that HMRC and HM Treasury should collect better evidence on the impact of reliefs on donor behaviour, and should work with the charitable sector and academics to obtain this.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Charity Begins at Home

Over a month ago I wrote that HMRC was going to send some of its experts to Pakistan to offer advice on how to increase its tax take.

It seems that, despite the fact the resources are scarce in HMRC's UK operations and that there are room for improvements in service/efficiency etc, Pakistan is not the only country that will receive help from HMRC.

The Guardian reported last week that HMRC will work with Ethiopian and Tanzanian tax authorities to undertake a health check to look at the structure of their revenue authorities, their potential to raise tax, and the degree of corruption or evasion either by individuals or companies.

All very nice and charitable. However, as I have noted before; why don't the HMRC experts stay at home, and help advise HMRC resolve its own issues wrt tax collection?

As the old saying goes, charity begins at home!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Knows Best III - No It Doesn't

The row over HMRC's new powers wrt withdrawing tax relief from any charity, if it feels that any of the charity's senior employees or trustees is untrustworthy, has pushed HMRC into revising its stance on the issue.

HMRC has backtracked, and issued revised guidance released last week. In the new guidance HMRC have removed the statement that all cheque signatories would be considered "managers", and therefore subject to the test.

The new guidance says:

"Most large charities have a board of trustees and an executive board of senior employees. In such cases the trustees and members of the executive board would be managers of the charity."

However, as Civil Society reports, there is still disquiet in the charity sector over the powers that HMRC may think that it can use.

Clive Cutbill, head of the charities and philanthropy team at Withers, is unconvinced and is quoted:

"It seems unlikely at this stage that any future revised guidance will limit the scope of the new test to charity trustees alone since the fraud risk HMRC has identified extends also to persons with control of charitable assets.

If the guidance continues to refer to 'managers' being all those with control over charitable assets, it will be difficult for charities to decide with certainty how far this control test goes and whether those who determine charity budgets (or who manage petty cash) will be caught.

HMRC's wide interpretation may be open to legal challenge and this, combined with pressure from sector groups, may in time lead HMRC to amend its guidance further."

A recipe for confusion, doubtless we can expect further revised statements from HMRC on this matter.

Tax does have to be taxing.

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Click the link to read about: Tax Investigation for Dummies

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HMRC Knows Best II

The row over HMRC's new powers wrt withdrawing tax relief from any charity, if it feels that any of its senior employees or trustees is untrustworthy, is not abating.

Charity law firm Bates Wells & Braithwaite has stated that it will write to Liberty, asking it to back their campaign to have the law repealed.

Bates Wells & Braithwaite is of the view that the "fit and proper persons" test for charities, breaches the human rights of charity employees.

Rosamund McCarthy, partner at Bates Wells & Braithwaite, is quoted in the Third Sector as saying that the law could give HMRC the power to dismiss charity employees and trustees and bar them from working in the sector again, based on suspicion rather than proof of wrongdoing. It also gave those employees no right to appeal.

HMRC state that it assumed that all people appointed by charities were fit and proper persons, unless HMRC had other evidence.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

HMRC Knows Best

HMRC have stated, in a reply to Bates Wells & Braithwaite, that they are better than the Charity Commission when it comes to determining which charities are fraudulent:

"HMRC has already identified fraud by individuals and charities registered by the commission and OSCR, which suggests that the charity regulators' checks are clearly not sufficient for effective tax administration."

A Charity Commission spokesman is quoted in ThirdSector:

"The commission and HMRC have different regulatory roles and perspectives, but we work closely to prevent the fraudulent abuse of charities."

Is it really an effective use of time and money for two bodies to be looking at the same thing?

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Power Corrupts - Fit and Proper Test

It seems that our "respected" MPs have foisted another piece of bureaucratic tax legislation upon us that will do nothing to lessen fraud, but will do everything to increase the bureaucratic burden on legitimate charities and their trustees.

Third Sector reports that a new measure introduced in the Finance Act earlier this month, designed to ensure that tax relief is not given to bogus charities, is too loosely worded and gives HMRC too much power.

The legislation gives HMRC the power to carry out a 'fit and proper persons' test, every time a charity hires a new trustee or senior manager. If a trustee fails to pass the test, the charity can be denied tax relief.

Sam Macdonald, partner at law firm Farrer & Co, is quoted:

"Charities will never really know whether they are entitled to tax relief or not.

HMRC has said 'you'll have to trust us', but that's not a reassuring basis on which to continue."

Bill Lewis, tax consultant at Bates Wells & Braithwaite, said:

"HMRC should have consulted on the legislation before introducing it.

This is more unnecessary paperwork, and penalises only the innocent. The red tape this produces will have no effect on fraudsters, but it will cause trouble for law-abiding trustees."

Simon Weil, partner at Bircham Dyson Bell, said:

"This is dangerously subjective legislation. I think the sector needs to fight for its independence."

Poorly drafted legislation giving more powers to an unelected bureaucracy is a dangerous combination.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Tax Avoidance? - Certainly Not!

There has been a large amount of chatter in various organs of the media recently about our "beloved" ex PM, religious convert and international peace maker, Tony Blair.

People are a little confused about how he makes his money, and the purpose of a number of companies that he seems to have connections with. Windrush Ventures, Tony Blair Africa Governance Initiative, and another called the Tony Blair Faith Foundation have all come under the spotlight.

The funny thing is that, as yet, no one has quite been able to make sense of the rationale for the structure of the 12 companies that Blair has created.

Now, were this anyone else, the obvious answer would be tax avoidance. Tax avoidance is of course perfectly legal. However, as TB is ex leader of the party that has officially come out against tax avoidance, describing it as "immoral", and as TB was once an MP (MPs' financial dealings are always above reproach, leading the moral way forward) this bizarre structure cannot possibly be for tax avoidance.

So what on earth is it for?

The Guardian, fed up with not understanding this either, has launched a wee competition asking accountants et al to study the company documents and structure and come up with an answer to this question:

"The former prime minister Tony Blair has received millions of pounds through an unusual mixture of commercial, charitable and religious income streams. Since he stepped down from office in 2007, his financial affairs have been described by observers as "Byzantine" and "opaque". The Guardian is now launching an online competition offering a prize to the person who can shine the brightest light on those financial structures.

Blair has a commercial consultancy, called Tony Blair Associates, plus jobs advising a US bank and a Swiss insurer. He has a multimillion pound book deal. He also has a charity, the Tony Blair Africa Governance Initiative, and another called the Tony Blair Faith Foundation. But much of the income, which includes charitable donations from other sources, has been funnelled through a structure called Windrush Ventures No 3 Limited Partnership. Our contest asks: what is Windrush?

Blair has a complex web of structures involving 12 different legal entities handling the unprecedented millions he is receiving since he stepped down from office in 2007.

So mystifying are the former prime minister's financial structures – which involve highly specialised limited partnerships and parallel companies – that the Guardian today launches an open invitation to tax specialists and accountants to attempt to explain the motivation behind such structures. We have published the Companies House documents and other legal papers regarding the structure of the partnerships at guardian.co.uk and invite expert comment via our site at guardian.co.uk/politics/series/blair-mystery."

I assume that HMRC have satisfied themselves that this does not conflict with their new found zeal to clamp down on avoidance schemes?

Any ideas anyone as to what this is for? There's an "HMRC Is Shite" T shirt in it for the winner.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Blears - The Tax Overpayment

It seems that Blears has made a tax overpayment, if Dave Hartnett's tax assessment of her zero liability for CGT is accurate.

Telegraph

"I've got round to asking after Hazel Blears and her cheque, which I mentioned a while back. My query was prompted by an item in the Independent's Pandora diary which claimed she was minded to hand the money over to a charity rather than see it credited to her future tax liabilities. What I've discovered rather increases the pressure on Geoff Hoon and James Purnell, who also face some property/CGT questions.

According to her office, on the day Ms Blears popped up in front of the cameras waving her cheque, she spoke to Dave Hartnett, the permanent secretary for tax at HM Revenue and Customs. Mr Hartnett is, in effect, the country's top tax man. He worked out for her what her capital gains tax liability would have been had she been liable for one. However - this is the crucial bit - he assured her that she was not liable and therefore did not have to pay the cash. Ms Blears, in line with the point she has made that her constituents aren't impressed even if it was legal (no kidding), decided to pay the cash anyway, and was given a special dispensation to do so. The cheque was walked around to HMRC headquarters that evening and handed over to a senior official, who had stayed behind to receive it.

The cheque has been cashed, I'm told by Ms Blears' advisers, and is now sitting in an account at HMRC. What happens to it now is unclear. If it goes into the general Government account and therefore becomes available to pay for hospitals, nuclear weapons, or police uniforms, Ms Blears will be happy. But if HMRC rules that it can only be credited to her by offsetting it against her future liabilities - in effect repaying her the money - she will make an equivalent contribution to a charity.

Which is why all eyes are on Messrs Hoon and Purnell to see how they respond. Ms Blears has set them a precedent."

Tax does have to be taxing.

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