Charity Newsletter – September 2019

Scottish Governance Code Checkup

The Scottish Council for Voluntary Organisations (SCVO) have created a Good Governance Checkup document to be used in conjunction with the Scottish Governance Code published earlier in the year to help trustees regularly review their governance. Your board can use the checkup to identify areas for improvement and monitor and record your journey to good governance.

You can view the Good Governance Checkup document here.

HMRC off-payroll working (IR35) guidance

HMRC has published guidance on the rules which will apply for engaging individuals through personal service companies from April 2020. The responsibility for determining whether the off-payroll working rules (sometimes known as IR35) apply will move to the organisation receiving an individual’s services.

Small organisations will be exempt from the rules which will mean a large number of charities will be excluded. The Companies Act definition will be used – to be small an organisation must meet two of the following conditions

  • annual turnover must be not more than £10.2 million
  • the balance sheet total must be not more than £5.1 million
  • the average number of employees must be no more than 50.

The guidance is available here   

Hard Brexit

With the new prime ministers’ directive and the fast approach of 31st October 2019, those within the Not for Profit Sector should be preparing for the possibility of a Hard Brexit.

The Charity Commission has published ‘Five ways civil society organisations can prepare for Brexit’, with five key areas to consider:

  1. If you employ EU staff or have EU volunteers
  2. If you receive EU funding
  3. If you receive any personal data from the EU
  4. If you import or export goods to or from the EU
  5. Potential changes to VAT and customs.

If any of the above applies to your organisation, the Charity Commission has a questionnaire which helps to tailor Brexit publications specifically to your organisation and to help you find relevant and useful information. The questionnaire is available here

Recent VAT judgement may be helpful for the not for profit sector

Frank A Smart & Son Ltd, an Aberdeenshire Business, incurred the VAT on the purchase of Single Farm Payment (SFP) Units, a scheme which entitles a farm to particular benefits and subsidies if certain conditions are met. HMRC refused the claim of this VAT, stating that the purchase of the units did not relate to any VATable sales activity and the VAT was therefore irrecoverable.

The claim made its way to the Supreme Court, where the crux of the argument came down to how income from the subsidies had been spent. In the case of Frank A Smart & Son Ltd, the subsidy income had been directly spent on taxable farming activities.

Judges ruled in agreement with Mr Smart that he should not have paid VAT on a £7.7 million transaction to buy more than 34,000 units of land, meaning he was able to reclaim VAT payments of more than £1 million.

Glyn Edwards, a VAT Director within MHA MacIntyre Hudson, and an advisor to Frank A Smart & Son Ltd stated: “There are potential benefits to the not-for-profit sector. The traditional view has been that no VAT can be claimed on costs which generate non-business income, but that may be over-restrictive. It is always worth looking beyond the immediate and understanding how income is used, before reaching a conclusion on input VAT recovery.”

This judgement is helpful against the recent decision by the Court of Justice of the EU (CJEU) on the University of Cambridge, which ruled that VAT on investment management fees could not be recovered as they were an overhead of investment activities, not charitable activities. This judgement will make it more difficult for HMRC to refuse VAT recovery on charitable fundraising activity in the future.

If you would like any advice on input VAT recovery or any other areas of VAT please get in touch with your contact at MHA and we can put you in touch with one of our VAT specialists.

Using Conflict as a Catalyst for Change

In conjunction with MHA, our national association of UK accountancy firms, we have produced a monthly guide for embracing, managing and mitigating conflict within your charity. Each article covers a different type of conflict that may affect your charity, with the overall theme of using conflict as a catalyst for change. The full guide is available here.