Budget 2007
The Budget – 21 March 2007 - as it affects the charity sector
This summary covers items in the Budget that we believe are of specific interest to our members as small employers, charities and/or part of the education sector. It is not intended to be a full review of all the general taxation aspects of the Budget. For more general budget commentary and headlines please refer to the details on the Treasury website.
It must also be remembered that almost all of these documents are subject to any changes that may be made to the draft legislation prior to the passing of the Finance Act in the summer. This information has been extracted from a longer document prepared for clients of Horwath Clark Whitehill LLP.
Gift Aid
Perhaps the worst news for charities is the reduction of the basic rate of income tax from 22% to 20% with effect from April 2008. While good news for taxpayers, it will hit charities that are substantially funded by donations from individuals. A reduction in the basic rate of tax will reduce the amount reclaimable by charities on Gift Aid donations from 28p to 25p for every pound donated.
Benefit limits for Gift Aid
Gift Aid is only available on donations where significant benefits are not received by the donor in return for the donation. These limits are currently:
- 25% of the value of the donation, where the donation is less than £100
- £25, where the value of the donation is between £100 and £1,000
- 2.5% of the value of the donation, where the donation exceeds £1,000, with an overall maximum benefit value of £250.
For donations made on or after 6 April 2007, the maximum benefit for donations over £1,000 will rise to 5% of the value of the donation, with an upper limit of £500. This means that a person donating £5,000 will be able to receive a benefit worth £250 (previously £125) from the charity in return and their donation will still qualify for Gift Aid. A person donating £15,000 will be limited to a benefit value of £500 (previously £250). This will primarily help charities with membership schemes, where members obtain benefits such as free admissions to performances or discounts in a charity shop in return for their membership fees. If the benefits are valued at less than the limits above, the membership fees can still qualify for Gift Aid.
Benefits consisting of free entry to charity property are ignored if the donation secures admission to the property for a 12-month period or if at least 10% more than the normal admission fee is paid.
Corporation tax rates
Large companies (with taxable profits of greater than £1.5m) will continue to pay tax at 30% for the year to 31 March 2008. From 1 April 2008 their rate of corporation tax will go down to 28%.
Small companies (with taxable profits of less than £300,000) will pay tax at 20% for the year to 31 March 2008. For the year to 31 March 2009 their rate will increase to 21% and for the year to 31 March 2010 it will increase to 22%.
The rates that will apply to company profits are as follows:
| Taxable profits | Year to 31 March | Year to 31 March |
|---|---|---|
| £1- £300,000 | 20% | 19% |
| £300,001- £1,500,000** | 32.5% | 32.5% |
| Over £1,500,000 | 30% | 30% |
| **Marginal relief rate | 1/40 | 11/400 |
The above limits for taxable profits are divided by the number of active companies (not including trusts) in a group.
Where charities or trading subsidiaries pay tax, since they tend to have lower profits and hence pay tax at the lower rates, any liabilities will correspondingly increase.
National minimum wage
The national minimum wage rates are set to increase from 1 October 2007. The new rates are £5.52 per hour for workers aged 22 or over and £4.60 per hour for workers aged 18-21 inclusive. The rate for 16 and 17 year olds increases to £3.40 per hour.
National Insurance Contributions (NICs)
The 2007/08 rates and thresholds were announced in the Pre-Budget Report and are set out below:
| 2007/8 | 2008/9 | |
|---|---|---|
| Primary (employees) and secondary (employers) thresholds | £100 per week | £97 per week |
| Upper earnings limit, primary Class 1 | £670 per week | £645 per week |
| Employees’ rate on earnings between the primary threshold and upper earnings limit | 11% | 11% |
| Employees’ rate on earnings above the upper earnings limit | 1% | 1% |
| Employers’ rate on earnings above the secondary threshold | 12.8% | 12.8% |
Although not announced in the Budget, the following will hopefully serve as a useful reminder of some recent changes or changes that will take effect from April 2007.
Use of employer’s van by employees
You need to be on your guard if you provide your employees with vans that they can take home. The tax charge on the private use of employers’ vans is about to undergo a six-fold increase. Currently the maximum scale charge is a modest £500, leaving the employer with a liability to Class 1A NICs of only £64 per van. As from 6 April 2007, this will go up to £3,000, added to which there will be a fuel scale charge of a further £500. So your Class 1A liability could rocket from £64 to £448, making this a significant on-cost.
The good news is that there is no taxable benefit when private use by the employee is restricted to journeys between home and work. Occasional incidental private journeys, such as a minor detour to buy a newspaper, should not change the position. On the other hand, using the van for the weekly shopping or to take the family on holiday will trigger a tax charge.
The bad news is that the onus is likely to be on the employer to satisfy HMRC that there is no private travel other than ordinary commuting. So make sure you remind your drivers regularly of the policy – in writing - and that your insurance policy does not cover them for unlimited private travel. It will not hurt to get them to sign an annual declaration that they have been informed of the policy and have not made private use of the van other than for journeys between home and work.
Statutory Sick Pay (SSP)
For employees with average weekly earnings of £87.00 or more, the SSP weekly rate on or after 6 April 2007 is £72.55.
Information about the SSP daily rates and a table detailing them can be found in the Employer Helpbook E14 What to do if your employee is sick for use from April 2007.
SSP recovery under the Percentage Threshold Scheme (PTS)
Unless an employer qualifies under the PTS they cannot recover any of the SSP they pay to their employees. In order to qualify the employer must pay SSP within a specified time.
Statutory Maternity Pay (SMP)
The amount of SMP paid to an employee for payment weeks starting on or after 1 April 2007 is:
- first six weeks of payment - the earnings related rate of 90% of the employee’s average weekly earnings
- remaining weeks - the lesser of the standard rate which is £112.75, or the earnings related rate, which is 90% of the employees average weekly earnings.
Statutory Paternity Pay (SPP)
The weekly rate of SPP paid to an employee for payment weeks starting on or after 1 April 2007 is:
- the lesser of the standard rate, which is £112.75, or
- 90% of the employee’s average weekly earnings.
Statutory Adoption Pay (SAP)
The weekly rate of SAP paid to an employee for payment weeks starting on or after 1 April 2007 is:
- the lesser of the standard rate, which is £112.75, or
- 90% of the employee’s average weekly earnings.
Employers are entitled to recover or apply for funding for the following amounts:
- from 6 April 2007 employers who do not qualify for Small Employers Relief (SER) can recover 92% of the SMP/SAP/SPP paid to their employees. This is the same rate as last year
- from 6 April 2007 employers who do qualify for Small Employers Relief (SER) can recover 100% of the SMP/SAP/SPP paid to their employees plus 4.5%. This is the same rate as last year
- for the 2007/08 tax year a ‘small employer’ is one who paid (or was liable to pay) total gross class 1 NICs of £45,000 or less in the individual’s qualifying tax year. This is the same threshold as last year.
VAT
The turnover level for registration increased from £61,000 to £64,000 and for deregistration from £59,000 to £62,000 with effect from 1 April 2007.
There is also a fundamental change to the VAT fuel scale charge for VAT periods starting after 1 May 2007. Previously, the charge was based upon the engine size of a vehicle. However, from 1 May onwards, the private use charge will align with that used for direct taxation and be based upon carbon dioxide (CO2) emissions. We see this as both a harmonisation exercise and the extension of ‘green principles’ to VAT law.
From 1 September 2007, record-keeping requirements for businesses transferred as a going concern will be brought into line with other tax and regulatory regimes so that the seller retains his records, except in the few cases where the buyer retains the seller’s VAT number.
Lone parents
An extension of In-Work Credit for lone parents in the present pilot areas at £40 per week until June 2008, with an increase in London to £60 per week.
Working Tax Credit
A run on period of four weeks has been introduced to avoid repayments where people are late reporting that they are no longer entitled to working tax credit.
The Working Tax Credit threshold has been increased by £1,200 to £6,420 in April 2008 to strengthen incentives to work for families with children and low income working households.
New deal
The Chancellor announced some pilot reform measures to strengthen the training offered under the new deal and encourage more to take up subsidised employment.
Local employment partnerships
Asda, B&Q, Marks & Spencer, Sainsbury’s and Tesco, along with the British Retail Consortium have agreed to work with Jobcentre Plus to support long term benefit claimants into work. More detail can be found at www.hmtreasury.gov.uk. The aim is to provide assistance for 100,000 people to find employment over the next five years.
Business rates
The system of business rates includes relief for unoccupied property. Charities will however get complete exemption from rates on unoccupied properties. This is compared to 80% mandatory relief and 20% discretionary relief from rates on properties occupied for charitable purposes.
Child tax credit
The government has increased the per child element of Child Tax Credit by £150 a year above earnings indexation in April 2008. This raises the child element to £2,080.
In addition, the weekly rate of child benefit for the eldest child is to rise to £20 a week in April 2010.
Third sector review
Additional funding of £80m has been granted by the government to provide small grants for ‘grass roots’ community organisations.
The government has stated that it will consult with the charitable sector on measures to increase the take up of Gift Aid and conduct an awareness-raising campaign. They will work with the sector on payroll giving and publishing guidance on tax efficient giving for individuals. Reliefs available for charitable giving continue to be worth over £2.5bn a year.
Public services - increased funding for education
An early Comprehensive Spending Review 2007 settlement for the Department for Education and Skills sees education spending in England rise by 2.5% each year in real terms (5.3% in cash terms) on average between 2007/08 and 2010/11. As a result total education spending in England will rise as follows:
| £billion | |
|---|---|
| 2007/8 | 63.7 |
| 2008/9 | 66.9 |
| 2009/10 | 70.0 |
| 2010/11 | 74.4 |
The extra resources announced for the Department of Education enable the government to:
- meet and build on the commitments set out in the 10 year strategy for childcare. This includes delivering a nationwide network of 3,500 Sure Start Children’s Centres – one in every community by 2010
- take the next steps on making a reality of personalised teaching and learning, including funding to provide an average of 10 hours of one to one tuition for over 300,000 under-attaining pupils a year in English by 2010/11 and a further 300,000 under-attaining pupils a year in maths.