HMRC announces changes to digital advertising VAT rates for charities – Updated

Charities should now review the VAT rate applied to advertising supplied to them over the last couple of years and where the rate has changed, ask suppliers to issue credit notes for advertising previously treated as standard rated which can now be zero rated. This could result in significant VAT savings for the organisation.

Following a campaign by the Charity Tax Group, HMRC have agreed to change their policy on VAT rates applicable to digital advertising. Previously HMRC stated that certain supplies of digital advertising did not fall into the zero rating relief available for charities because the supplies were targeted advertising. They have now reconsidered certain types of digital advertising and decided that they are in fact zero-rated. Charities should note, however, that some types of digital advertising remain standard rated.

Charities should now review the VAT rate applied to advertising supplied to them over the last couple of years and where the rate has changed, ask suppliers to issue credit notes for advertising previously treated as standard rated which can now be zero rated. This could result in significant VAT savings for the organisation.

Where a charity buys services from outside the UK, it must account for VAT on the cost of those services if they are standard rated under a procedure known as reverse charge. Charities therefore should check the VAT rate applied to reverse charges on services purchased from outside the UK and make a reclaim of VAT if they have accounted for reverse charge VAT on services which HMRC now accept can be zero rated.

The tables below show the VAT rate previously advised by HMRC and the new revised VAT rate.

Zero rate advertising:

Advertising Type Description Previously Advised VAT Rate Updated VAT Rate
Audience targeting Similar use of information as demographic targeting but on a group of individuals. This will still be based on their IP addresses and direct contact. Standard rate Zero rate
Behavioural targeting Similar to retargeting – adverts displayed based on prior websites visited based on IP address. Standard rate Zero rate
Channel targeting A particular section/page of a website used to advertise. Zero rate Zero rate
Content targeting Adverts displayed alongside related content. Zero rate Zero rate
Daypart targeting Advertising at specific times of day or specific days of the week. Not a targeted selection of individuals.  Standard rate Zero Rate 
Demographic targeting Using sources of data on the targeted individual to base the advertisements on. Standard rate Zero rate
Device targeting Example is an advertiser choosing certain devices to advertise to, not targeting specific individuals. Zero rate Zero rate
Direct placements on third party websites These are advertisements and not involving selection on address. Zero rate Zero rate
Location targeting IP addresses used to target individuals in a particular area. Standard rate Zero rate
Lookalike targeting Cookies used to identify potential new customers by reviewing current customers, advertiser then directly targets the potential new clients.  Standard rate Zero rate
Pay per Click adverts These are advertisements and not involving selection on address. Zero rate Zero rate
Retargeting individuals revisiting a website The IP address of the individual is recorded and advertising is presented based on the users prior searches. Standard rate Zero rate

Standard rate advertising:

Advertising Type Description Previously Advised VAT Rate Updated VAT Rate
Email adverts Advertisements sent to email addresses Standard rate Standard rate
Natural Hits Not supplies of advertising. Standard rate Standard rate
Social media Advertising is specifically targeted at the individual’s account. Standard rate Standard rate

If you would like further advice or guidance regarding how this will affect your organisation and what you should do, please do not hesitate to contact a member of our specialist VAT and Indirect Tax partner Jonathan Main using the details below.


Jonathan Main
jonathan.main@mooreandsmalley.co.uk
01772 821021

This article originally appeared on the MHA MacIntyre Hudson website. Please find attached link to the original article here.

Grant funding organisations that aren’t charities

Awarding grants to non-charities.

Many charities award grants to support activities that are in line with their charitable objects. Many of the organisations to which grants are paid will be charities themselves. However, there may be instances where the charity wants to support an organisation which is not a registered charity.  It may want to award grants to social enterprises or projects overseas.  The Charity Commission has issued updated guidance on the additional considerations for Trustees on whether the awarding of grants to these organisations is appropriate.   

Before considering awarding a grant to an organisation that is not a charity, you should first ensure that it is permitted by your governing document.

Charitable purpose

A charity has to carry out activities in line with its charitable purposes for the public benefit.  An organisation which is not a charity does not have the same constraints.  In awarding a grant, Trustees will need to ensure that the organisation is clear on what the grant can and cannot be used for to ensure that it doesn’t include activities outside the charity’s own objects.

What to consider before awarding a grant

It is important that Trustees have sufficient information when considering awarding grants to allow them to make informed decisions based on their assessment of the risk involved.   Grant applications should be structured such that they include all relevant information to allow effective risk assessment and consideration of the project to be undertaken.

The Trustees should then carry out appropriate checks on the organisation and the application.  The Trustees need to consider if the organisation is genuine and suitable for the charity to work with.   The level of due diligence will vary depending on the organisation and the project to be undertaken.  Trustees will need to assess the level of scrutiny and evidence required to manage the risk of working with the organisation.  Issues to consider include the reputation of the organisation and its governance structure.  The Trustees may also consider financial factors such as the financial stability of the organisation, its past record in the management of similar projects and the effectiveness of its controls and procedures.  If an organisation wishes to work with the charity, it should be willing to supply supporting documentation and evidence of its effectiveness to allow Trustees to make informed decisions. Trustees should be able to justify all decisions and discussions should be documented and any supporting evidence retained.

Monitoring the project.

Once the grant has been awarded, it is important that the Trustees include in the terms and conditions that the grant is only to be used for the purposes stated which are in line with the charity’s own objects.   A time period should be set for the delivery of the activities and the Trustees also need to decide on the level of independent monitoring they require.  This could include periodic reports throughout the project or a single report at the end. Copy invoices may also be obtained in order to evidence project expenditure. The terms and conditions also need to make clear what will happen if the conditions of the grant are breached.

As a guiding rule, as with any other decision, Trustees should be satisfied that they have acted in the best interests of the charity.

If you would like any further information in respect of the above, please contact a member of the charity team.

Government advice

Please follow the attached link for the advice provided by the charity commission

Charity Webinar: Rising above Covid-19

MHA Moore and Smalley hosted a free webinar for the charity and not for profit sector on Tuesday 15 September 2020.

In this webinar our charity specialists provided topical updates on current issues affecting the sector, focusing specifically on considerations for charities as we look to recover from Covid 19, together with a review of recent guidance and developments in VAT.

What the webinar covered:

Our charity specialists, Christine WilsonTracey Johnson and Nicola Mason looked at the following:

  • Recent guidance on funding, accounts, reporting to the Charity Commission and other areas. Timestamp – 2:28
  • What charities need to consider and put in place in the short term to ensure that all responsibilities are being met effectively. Timestamp – 18:05
  • How the charity can move forward in the longer term to utilise the positives that have evolved from the current situation and what Trustees and management need to consider. Timestamp – 1:00:36

Jonathan Main leads our VAT and indirect taxes team and during this webinar discussed the many ways in which VAT and other indirect taxes can be managed to help optimise your tax position. Timestamp – 42:34

Please find video below:

Charity Webinar: Rising above Covid-19

MHA Trustee Hub

MHA has launched a hub which is a dedicated online resource for Charity and Not for profit entities.

The hub will contain a collection of templates, checklists, policies and procedures, as well as  videos and interviews from our specialists.

Proforma Reserves Policy – On an annual basis the charity reserves policy is reviewed formally by the trustees as part of its strategic and business planning process – are you looking to update your policy? We have template documents which could help with the process

Board Performance Review – This document we have developed includes our handy checklist that helps you drill down and identify what information is needed in advance – resulting in a more productive meeting.

Code of Governance Questionnaire – The code of governance is built around 7 key principles – we have created a questionnaire to make sure all areas of law and regulation are addressed.

New documents will be added to the Hub on a regular basis so please continue to visit the page on a regular basis.

Internal Control Opportunities in the ‘New Normal’

Following the governments signalling the easing of lockdown and announcing measures to encourage the restarting of the economy, it is important that as we do this that we take the time to consider what benefits and efficiencies we have gained through working in a largely remote environment and how we can build these into a ‘new normal’ going forwards.

This is to maximise not only the effectiveness of working practices but also to provide for the welfare of our staff and the way that they choose to live their lives going forward.

We have therefore provided some thoughts below on some of the considerations that should be given when adapting your control arrangements in the new world:

Bring Everyone Together

It is tempting for decisions on how to operate in the “new normal” to be taken at the top or through small decision-making groups. Taking a more inclusive approach to this across the workforce not only engenders a feeling of togetherness but also maximises the likelihood that you will be able to capture more of those marginal efficiency gains that people have developed in a remote environment and be able bring these into the new normal working conditions.

Understand the risks

Knowing not only the risk environment which you operate in but also the organisations appetite to risk will help to enable the right people to make good decisions at the right time.

Ensuring your systems of risk management are effective and up to date will therefore help you in understanding the risks you face in the post-pandemic world but also, given your appetite to risk, how you may choose to respond to these.

Complexity is not your friend

There is sometimes a view that by making a process lengthier and more complex that you reduce the likelihood of material error as so many checks are in place to make the chances of this remote.

In reality this is rarely the case, and it is often simple processes, with appropriate safeguards built in, that work the best as they can be easily understood by all and therefore not only reduce the time taken to process but also the opportunity for someone getting it wrong first time.

The threat of fraud will always be there

Unfortunately, there will always be those who want to exploit people and organisations for their own gain, so it is vital that appropriate safeguards are built into your control environment to minimise the risk of fraud and theft.

For your IT systems this means ensuring that there are safeguards over access to systems, password controls are enforced, and patches are updated as often as required.

There can be great efficiencies gained through moving to electronic processes for areas such as invoice authorisation, but it is important that safeguards are developed to reduce the risk of fraud.

Test, test, test

The importance of testing has been highlighted for different reasons in recent months, but it is  important as part of any changes to control processes that these are tested on a small scale prior to going live to ensure any flaws in the process are identified and rectified before the processes become business as usual.

Support through governance structures

Establishing good governance arrangements at all levels within your organisation will help support thedecision making and help to ensure that the right decisions are made by the right people at the right time.

Seek assurance At first, second- and third-line levels it is important that Boards, via their audit or risk committees, are assured that key internal controls are operating effectively to support the organisation in meeting its objectives.

Therefore, it should be identified how such assurance will be provided and received, and whether independent assurance needs to be sought over key internal control processes.

This article was originally written by our colleagues at MHA MacIntyre Hudson

Maximising your Deposit returns and Security

As we continue to manage our way through the Covid pandemic and start to see some aspects of life return to some form of normality, many of us will have had considerable time on our hands to consider our own financial wellbeing and this will also be true for Charities.

At MHA Moore and Smalley, we understand that it can be difficult for Charities to build and manage cash reserves.

Interest rates in the UK have been at a low level for several years. Currently the Bank of England are weighing up their options to stimulate the UK economy and give it a much-needed boost to help it through the Coronavirus crisis, including looking at a negative base rate. More potential bad news for savers looking at generating a return from their deposits.

For Charities this leaves them with little or potentially no return on the funds they rely on to keep everything going.

The Financial Planning team at MHA Moore and Smalley can help as planning is the cornerstone of financial confidence. We can assist with reviews of rates, mapping a plan of how to secure the highest rates in the marketplace, with an eye on capital security, conducting due diligence on the institutions, and for a lot of our existing charity clients, providing that extra layer of security and acting as an independent credible challenge to the trustees decisions.

As advisers, we provide peace of mind in these uncertain times and help to provide access to rates that are not available in the marketplace. We also take away the headache of research, thus saving time now and in the future on what can be an essential exercise for the charity to maximise its returns.

We do charge fees for our work, but for our existing clients we have been thanked for our efforts and told that we have provided great value for money in the work that we do.

If you feel that you could benefit from an initial no obligation conversation about your own charity’s cash deposits please contact a member of the Financial Planning team on 01772 821 021 or email financialplanning@mooreandsmalley.co.uk

Gift Aid: relaxing of rules

UK Fundraising, in collaboration with CTG, have published details of the relaxation of the following Gift Aid rules:

Cancelled events

HMRC has accepted that a charity may claim Gift Aid on ticket refunds if individuals choose to donate their refund to the charity under Gift Aid. This is subject to the charity informing the individual that the donation is not obligatory but that once made it is non-refundable, alongside a handful of other requirements. This applies to refunds for fundraising events, challenge events, courses and conferences but only if cancelled as a result of COVID-19.

Membership subscriptions

In light of many charities and Community Amateur Sports Clubs (CASCs) reducing or even waiving membership subscriptions as a result of COVID-19, HMRC have accepted that donations made instead of subscriptions and intended to support the charity/CASC may be eligible for Gift Aid. Furthermore, amounts given in excess of reduced subscription rate, may also be eligible for Gift Aid.

Retail Gift Aid Scheme (RGAS)

So long as the charity’s staff have provided an explanation of the Gift Aid scheme to the donor, Gift Aid can be claimed under RGAS with only an ‘oral declaration’. Furthermore, should return notifications be issued by post but not received due to office closure, charities are permitted to continue claiming Gift Aid under RGAS.

Gift Aid Small Donation Scheme (GASDS) HMRC have accepted that cash donors may wish to save up regular donations of under the £30 GASDS limit and give them to a charity in one go once it is safe to do so. Where the charity is happy that these are separate, sub-£30 donations, then the total donation is eligible for GASDS.

This article was originally written by our colleagues at MHA MacIntyre Hudson