Blog

Tax and VAT

29 August 2012, 16:08

Another zero rate bites the dust...

Post byMelora Jezierska

Where next?

Events »

Tuesday, 19 October 2021
Inspiring Financial Leadership - 2021/22 More »

News »

Monday, 11 October 2021
CFG launches new leadership tool for finance teams More »

With fewer distractions now the Olympics have finished, we’ve been reflecting on the charity finance-related policy developments of the year so far – many of which were introduced or reiterated in March’s budget. The rather unpopular budget finally limped onto the statute book last month, following a number of u-turns and minus any reference to the ‘charity tax’ following widespread objections from the sector. One area where lobbying efforts were much less successful, however, was on the Government’s proposal to remove the VAT zero-rating for alterations to listed buildings. The measure will result in significant additional costs to charities owning or using listed buildings, which will have a negative, knock-on impact on beneficiaries and, more widely, the use of heritage assets in the UK. However we also objected to the policy on the grounds that it is poorly and unfairly targeted, given that it will hit a huge swathe of individuals and organisations (including charities) yet only achieve its policy objective on very few. Government indicated that the measure was intended to crack down on owners of listed buildings making changes - which have nothing to do with heritage preservation - for their own personal benefit, or making alterations when it’s actually repairs that are needed, VAT free. While few would object to this, we and others questioned how often it actually happens – are there lots of millionaires out there installing a steam room on the side of a crumbling wall to save the VAT on re-plastering? The Heritage Alliance, who actively campaigned against the measure, submitted an FOI request which revealed, somewhat unsettlingly, that the policy’s underlying justification was based on a total of only 105 cases. The measure was also justified on the grounds of simplification, as repairs to alterations are charged at the standard rate of VAT. In principle, of course it would be easier and more logical to have a flat rate for both – but the reality is policy doesn’t work like that, especially not tax policy. ‘Simplification’ shouldn’t be an end in itself, particularly if it is going to cost millions more per year, impact on UK heritage and result in more work (which for charities means more fundraising and planning). Some have suggested that the move was really a cheap swipe intended to be viewed as targeting the wealthy owners of country mansions, to offset any perceived bias to the rich with the removal of the top tax bracket. (This was certainly one of the reasons for the cap on tax reliefs for higher rate payers). However, as we’ve said before, this type of last-minute populist policy making does not allow for due consideration to be given to the full implications of any changes. In this case charities and the heritage sector have ended up the unintended victims. Nonetheless, while there was no full u-turn or charity exemption (as we pushed for in our consultation response) a number of fairly substantial concessions were made. Firstly, and perhaps most importantly, the Government announced fairly early on that an additional £30m would be made available for the DCMS Listed Places of Worship Grant Scheme, to ensure applicants receive 100% of their VAT back. Great news for the churches and others who embarked on a highly effective and united lobbying project, but you can’t help but feel it’s a case of appeasing those with the loudest voice. Plus it’s unfair to single out one group when HMRC’s reason for not granting a charity exemption was that it was ‘hard to justify preferential treatment… whether or not a charity is involved’ – i.e. you can’t single out charities. Since then more generous transitional arrangements have also been announced, extending the transition period to 30 September 2015 (from 2013) and allowing projects to continue to benefit from the zero rate if listed building consent (or equivalent) had been applied for before budget day (21 March 2012). All these changes are good but don’t detract from the fact the measure will still bring huge costs and in all likelihood stop many much-needed projects from going ahead. So what next? Heritage Alliance has said it’s important to track the impact – to see whether valuable projects are shelved and heritage assets do suffer. So we would encourage charities with listed buildings to consider and note what difference the VAT change makes over time. The sad fact is that even if it transpires that the policy is a disaster there will be no scope for a rethink – the EU doesn’t like zero ratings so there is slim to none chance of prising this one back. Which is a real shame given the damaging effect this will have on charities, their beneficiaries and the UK heritage sector. « Back to all blog posts

Blog

Another zero rate bites the dust...

Related Content

The CFG Guide to Gift Aid 2021

Finance Focus March 2021

Tax Day: What could it mean for charities?

CFG Briefing: Budget 2021

POLICY UPDATE: Tax after Coronavirus

Finance Focus October 2020

Finance Focus September

Summer Economic Update

The Charity Tax Commission report - does it go far enough?

Live Blog: Autumn Budget 2017

What should charities expect from the Autumn Budget 2017?

Probate fees for charities accessing legacies doesn’t make sense

NCVO Almanac points to fundamental shifts in the charity operating environment

Common Gift Aid Questions Answered by HMRC

Better partnerships needed between finance and fundraising teams

What does CFG want to see from the spring budget?

IFS 2017 Green Budget – the good, the bad, and the worrying?

CFG unveils Charity Tax Plan

EU Referendum: What could this mean for charities?

CFG's 2016 Budget Briefing published

A ‘straightjacket’ Budget: Pay, Tax Avoidance, Welfare and Assets

Hunting for the silver lining; the IFS, the economy and charities.

Gift Aid Small Donations Scheme: Is it really working for charities?

Tackling some myths on the Spending Review

Targeted giveaways risk creating a hierarchy of charities

Public benefit is at the core of both charities and the tax system

Financial sustainability won’t be easy for the charity sector

Some lessons from HMRC's Higher Rate Gift Aid Donors report

Welfare and employment dominate the Budget: What does this mean for charities?

#volsecbudget 2015 - CFG Live Blog

What can charities expect from Wednesday's Budget? #VolSecBudget

What did we learn from the latest Charity Tax Stats?

Gift Aid could be the key to encouraging a culture of giving

Budget 2015 – Missed opportunities and targeted giveaways

#volsecbudget – What should charities look out for?

Fog of uncertainty makes post-election planning difficult for charities

Vision for sector post-2015. What did the politicians have to say at the CFG Annual Conferece?

Managing in a Downturn Report Reflections....

Research questions to get our teeth into on Gift Aid

NAO report on Gift Aid: Evidence of a lack of evidence

Why charities need to respond to the SORP consultation

Business rate relief for charity shops in Wales: why it matters elsewhere too

FATCA: What charities need to know

VAT at 40: a win for the exchequer but a loss for the charity sector

Delayed reaction: what difference do Budget measures make to charities?

What we’d like from George tomorrow

Real Time Information: are you ready for the changes to payroll?

FATCA: The facts (plus a few observations)

Foot-shooting policy making

VAT - Made Simple Guide

VAT Postal Services - Claims for input tax

Whitechapel Art Gallery Tribunal Case

Trading - A Survivor's Guide

Fundraising Partnerships and Sponsorships

Taxing Independents in the Charity Sector

VAT Issues Around Membership

Tips for Reducing VAT Costs