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Our chance to be Chancellor with the Charity Tax Commission Call for Evidence

Here’s the first in a series of bite-sized blogs about our response to the Charity Tax Commission’s call for evidence, the first review of charity tax reliefs in a very long time. It includes Gift Aid, first introduced in the Finance Act 1990 thanks to the-then chancellor John Major, VAT relief (three cheers for Gordon Brown!) and Business Rates Relief (hurrah for Nigel Lawson!). First up is our take on VAT Relief:


With specific reference to VAT relief on non-domestic energy contracts - many charities that are eligible to reduce their bills by paying less VAT and no Climate Change Levy do not realise they are able to do so; nor do they know that the onus is on them to declare their charitable status to their suppliers in order to qualify; nor do they realise that they can claim a rebate for up to 4 years if they have been overcharged historically. Research conducted in my previous role as Head of Insights at Make It Cheaper showed this lack of knowledge to affect around a third of charities. One can also assume that sales practices within energy companies - and their intermediaries - also lack sufficient knowledge to set the VAT level correctly every time. To illustrate this, there are organisations with names that clearly demonstrate they are a charity (church, chapel, hospice etc) that have been consistently billed at the wrong rate without questions or internal flags having been raised.


The effects from a wide lack of knowledge about this particular tax relief are compounded by the complex rules that govern it.


One example of this is where a charity has benefited from VAT/CCL relief because they qualify under the Deminimis Rule but mistakenly believed this relief to be because of their charity status. Often in these cases, the charity’s energy consumption will eventually rise above the Deminimis threshold and they find themselves, inexplicably, charged at the higher rate of VAT on subsequent bills.


Another barrier is the Business / Non-business definition and the 60% threshold. Two charities with identical energy consumption profiles might have very differing views on what constitutes Business and Non-Business Use. Where charity shops, church halls and village halls are concerned, this is a very grey area that will no doubt take on a shade or two more when the proposals from the Taylor Review encourage more business activities within community buildings.


Community Amateur Sports Clubs are a particularly unfair victim of the Business Use rule, where a not-for-profit club - staffed only by volunteers - could be struggling financially to provide much-needed facilities to its local community but prevented from reducing its energy bills. And yet, an unregistered charity, that may have a very similar mission is not impeded in the same way.


For organisations that have identified - or suspected - that overpayments have been made, there is a different set of hurdles that stand between them and obtaining a rebate. Some energy suppliers are very good at processing claims and swift at crediting customers but others are not. Unfortunately the largest supplier of energy to the UK’s charities will only refund overpayments from the past 12 months, this despite guidance from HMRC to backdate up to 4 years. So ambiguous is this situation that neither the Energy Ombudsman nor Ofgem are able to intervene.


In summary, VAT relief on energy (and corresponding CCL relief) is not being efficiently applied to charities and there are currently too many unfair losers to omit this relief from some kind of reform.


Moving forward, Back of the Sofa’s recommendations would be to:

  • Remove the Business/Non-Business Rule

  • Include CASCs in the Relief

  • Communicate the tax relief available to all charities via the Charity Commission

  • Mandate energy suppliers to audit their charity customers and correspond with any not claiming the relief

  • Mandate all energy suppliers to rebate overpayments up to 4 years


Here you can read Back of the Sofa's full response to the Charity Tax Commission’s call for evidence.

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