Blog

Liz Maher's thoughts on the new 'stealth tax'

09.09.2011

With commentary in last week’s Western Mail over the “stealth tax” VAT content in the forthcoming carrier bag levy in Wales I was reminded of the phrase: “Looking a gift horse in mouth.”

Why? Well the issue being discussed in the article centred on the fact that within a charge purported to be levied to help raise funds for good causes in Wales, .83p of the 5p levy will be VAT. This will go off to the Treasury representing the element that VAT registered organisations (including Charity Shops) selling the bag will have to account for on the income. Also the net income is recorded as trading income for the business and will add to any net profit calculation on which corporation tax would be due.

For those of us who specialise in looking after the not-for-profit sector from a VAT perspective it is difficult to be surprised anymore that what is first promoted as good news for charities quickly gets eroded by the demands of the VAT accounting rules.

Such are the ever changing complexities of the tax and the pressures on keeping up to speed with VAT that we’ve been running a series of VAT awareness sessions for the not for profit sector in Wales. As well as bespoke courses for clients in the third sector recently, we, in conjunction with Sarah Case at Broomfield’s, have put together a half day training session to build VAT awareness and introduce entities to basic Direct Tax responsibilities. I have to say we’ve been very pleased with the level of interest and attendance.

Part of the success is the fact that we recognise that whilst the third sector needs access to high quality VAT & Tax training it can’t afford to travel far, incurring both travel and time costs in addition to course fees. So running short courses based locally in Wales for a minimal charge, really did seem to appeal. The next two dates for the diary are 15th Sept at Broomfield’s Cardiff Gate offices and 12thOctober at The Village Hotel, Swansea.

VAT is a constantly changing entity, just look at the proposed drafting of the VAT exemption for cost sharing recharges currently being consulted on by HMRC. A change which could remove the charge of VAT on cost recharges between independent parties coming together to share costs of a project, an issue directly relevant to the third sector.

I’ve managed to arrange with HMRC policy section for them to come to Wales on the 14th Sept to run presentations to the charity sector and the housing association sector through a WCVA hosted event in the morning and a Community Housing Cymru hosted event in the afternoon. I think it's vital to get our voices heard before the legislation is set in stone.

More changes lurk ahead as next year the proposal is that all entities with a turnover under £100k will be required from the 1 April 2012 to submit their VAT returns online and pay electronically. Further moves to the digital management of VAT are likely for such areas as VAT registration, deregistration and recording variations in business’s details such as addresses. Even now businesses are encouraged to register online and all those over the £100k turnover have to submit their returns online.

The problem is, and I speak as a trustee board member of a national charity and the Treasurer of a small local charity, that the pressures on the third sector seem ever increasing at the moment as funding options disappear and income generation options face the same commercial spending downturn as everyone else. It’s tough out there, there’s no denying it.