Forcing charitable trading subsidiaries to make quarterly digital tax submissions will create a significant administrative burden for no real purpose, an HMRC representative was told yesterday.
Speaking at the Charity Tax Group's annual tax conference, Ted Comerford, head of the customer readiness and stakeholder engagement team at HMRC, faced repeated questions about the value of including charity subsidiaries in the Making Tax Digital initiative.
HM Revenue & Customs conducted the Making Tax Digital consultation last year, which included proposals to require all organisations to maintain and submit digital tax records on a quarterly basis. Charities were later confirmed as exempt, but their trading subsidiaries are not.
The Charity Finance Group has estimated that the decision could cost the charity sector “millions of pounds of donors money”.
'Very little tax to pay'
Speaking from the audience, Amanda Darley, tax specialist at the British Universities Finance Directors Group, asked what benefit there is to HMRC in trading subsidiaries filing quarterly. She said: “From a corporation tax point of view, there may be something to report during the year, but at the year end, what they are almost certainly going to do is Gift Aid the money to the charity, so there will be very little tax to pay.”
And Anne Wilson, tax director at Crowe Clark Whitehill, added that trading subsidiaries tend to do all their accounting at year end rather than throughout the year. “So if you want them to account quarterly, they're still going to have to construct some sort of financial records that normally they wouldn't have to.”
Finally another audience member, who didn't give their name, issued a plea on behalf of those in the room. “Knowing how much time and money charities are going to spend on this, even the pilot charities, the plea is if you could go back at policy level and work out exactly what benefit there is to include charity trading subsidiaries in this.
“I think that that would be a plea heartily given by everybody in this room.”
Treating businesses fairly
Responding, Comerford emphasised that HMRC is asking for four “quarterly updates” a year rather than four full tax returns, and that this might be as simple as a software product feeding information through and this being accepted by HMRC.
He also said that there will be more scrutiny of the initiative by the likes of the House of Lords Economic Affairs Committee, and so he will feed charities' concerns into that.
However, he said that ultimately the decision was about making sure HMRC treats all business entities even handedly.
“Although charitable trading subsidiaries are not in direct competition with other businesses on the high street, they are certainly a business entity that operates within that environment, so we think it is right and proper that they should have similar obligations to other trading businesses.”
He added: “In relation to the returns process, I would envisage charitable trading subsidiaries being at the simpler end of the business spectrum, so the software should do all that hard work for you.”
Comerford also said that HMRC wishes to provide business entities with a view of their emerging tax obligations and liabilities, which means that it needs to receive information on a more regular basis so that it can feed that back to businesses.
However, John Hemming, head of tax at the Wellcome Trust and chair of the Charity Tax Group, reiterated that the tax liabilities of charitable trading subsidiaries are negated by Gift-Aiding funds to the parent charity at the end of the year.
“The information you're receiving doesn't really help you understand the tax position, and is pretty meaningless from our point of view.”