Making Tax Digital – relevant to the Not for Profit sector?

Chris Yeates

HM Revenue & Customs (HMRC) are changing the way they collect tax information. The changes, referred to as Making Tax Digital (MTD), are billed as a “digital revolution” that will “transform the experience of millions of taxpayers”. The changes will come into force from April 2018 with plans to deliver a full digital tax service by 2020. At the heart of MTD is the requirement to maintain digital records and report this to HMRC at least quarterly.

You may be thinking “That’s interesting, but it won’t affect us, our charity doesn’t pay tax on earnings” and you are probably right. However, the impact this will have on the sector is not yet clear; some will be affected, and all will need to monitor the situation.

There are currently a number of consultations to determine how MTD will operate. The impact on the sector will not be clear until the Government’s response is published. This is expected in early 2017.

Consultations proposals

Most charities do not pay tax on income because of the various exemptions available to charities. In recognition of this, the consultations propose that charities and Community Amateur Sports Clubs (CASCs) should be exempt from the requirement to maintain digital records and to update HMRC quarterly, essentially giving a charity the chance to opt in if it feels that it has sufficient capability and resources to do so.

This is a stance that we (and we suspect many others in the charity sector) share.

Many charities, however, operate trading subsidiaries. These companies will not be covered by a charity exemption. The consultation asks whether the exemption should be extended to trading subsidiaries of charities. HMRC’s rationale for making trading subsidiaries comply with MTD is “the need for a level playing field where charity trading subsidiaries are competing with other non-charity affiliated businesses”. We do not agree with HMRC on this point and in our response to them we called for the exemption to be extended to trading subsidiaries of charities.

What if we are not a charity or CASC?

There will, of course, be not for profit entities that are not formed as charities or CASCs, for example, community interest companies and some companies limited by guarantee. These entities will have to comply with the MTD requirements.

Action

  • All not for profit entities should monitor the progress of MTD to confirm how they are affected.
  • Those caught will need to take steps to ensure they understand the requirements and have appropriate software to be able to report information to HMRC. We can help you with this.

Resources

For all the latest information regarding Making Tax Digital please visit the dedicated page on our website.

If you would like to speak to one of our specialist team regarding how the changes may affect you please call 01603 624181 or email charities@larking-gowen.co.uk