Chartered Accountants and Professional Business Advisers

Charity and Not for Profit

There have been recent legislative and administrative changes which will affect charities and not-for-profit organisations.

Charities Act 2011

The Charities Act 2011 came into effect on 14 March 2012.

It was introduced to replace and consolidate four Acts of Parliament (Charities Acts 1992, 1993 and 2006 and the Recreational Charities Act 1958) with the intention to make the law easier to understand. It does not make any changes to the law.

Going forward, Charities will need to refer to the Charities Act 2011 in all documents, reports, accounts or statements that have been produced on or after 14 March 2012 (even if they relate to an earlier financial period).

The Charity Commission does, however, confirm that documents will still be valid even if a charity accidently refers to the earlier Acts and that Charities are not required to change any documents finalised before 14 March 2012.

Inheritance tax - reduced rate

The measures announced in the 2011 Budget to encourage bequests to charities have now been implemented.

If bequests totalling at least 10% of a net estate are left to charity on death, the inheritance tax rate which applies to any taxable remainder is reduced from 40% to 36%. For this purpose the "net estate" is the estate otherwise chargeable at 40%, so it is the estate after deducting any exemptions such as a bequest to a surviving spouse, business property relief, agricultural relief and the nil rate band. The effect can never be to increase the amount otherwise payable to the heirs.

Organisations affected may wish to take account of this change in their fund raising activities.

Cap on charitable donations

In his 2012 Budget speech, the Chancellor announced the intention to introduce rules effective from 6 April 2013 designed to prevent individuals from benefiting from a tax deduction of more than the higher of £50,000 and 25% of their income. This was in response to suggestions that by 'abusing' reliefs, some very wealthy people pay income tax at an effective rate of less than 10%.

To the surprise of many, donations to charities were included  in the reliefs proposed to be affected by the new rules. In the uproar which has ensued, the Government has suggested that the implementation was deliberately deferred to allow time for further consultation, so the effect on charities in the longer term remains to be seen.

The rules as currently envisaged are not due to apply until 6 April 2013, some so potential donors may wish to consider bringing forward their gifts so that they are made before any new regulations are scheduled to take effect. This may also enable them to save tax at 50% this year as the top rate will also reduce to 45% next April.

Gift Aid Declarations

HM Revenue & Customs (HMRC) issued new guidance on Gift Aid on 24 February, which says:

‘Your charity must explain to donors who are making a Gift Aid declaration that they need to pay at least as much UK Income Tax and/or Capital Gains Tax for the year of donation as you, and any other charities and CASCs they donate to, will claim on their donations.' It goes on to say that 'If your charity or CASC does not provide this explanation the declaration will be invalid and Gift Aid will not be due on the donation."

The declarations made to most charities up to now have not included the wording now recommended. The new guidance led to concerns that HMRC could, therefore, disallow all the donations made under the shelter of these defective declarations. However, HMRC confirmed on 14 March 2012 that they will continue to accept Gift Aid claims on donations made using forms based on the wording in the old HMRC model declaration until 31 December 2012.

HMRC have updated their guidance on Gift Aid declarations and provided a new model declaration.

Charities are recommended to update their gift aid declarations and adopt the new guidance as soon as possible.

We would be happy to assist with the wording of your gift aid declarations to ensure that you are fulfilling HMRC's requirements.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above.  If you would like advice or further information, please speak to your usual Shipleys contact

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