VAT Relief For Charities

VAT taxCharities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses.  As a charity you do not pay VAT when you buy some goods and services

What qualifies for the reduced rate

Your charity pays 5% VAT on fuel and power if they’re for:

  • residential accommodation (for example, a children’s home or care home for the elderly)
  • charitable non-business activities (for example, free daycare for disabled people)
  • small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil)

If less than 60% of the fuel and power is for something that qualifies, you’ll pay the reduced rate of VAT on the qualifying part and the standard rate (currently 20%) on the rest.

Qualifying fuel and power includes gases, electricity, oils and solid fuels (such as coal). It does not include vehicle fuel.

What qualifies for the zero rate

Find out about the conditions you must meet so that your charity pays no VAT (the zero rate) when you buy:

VAT-free goods from outside the UK

Charities do not pay VAT on goods imported from outside the UK as long as they’re benefiting people in need by providing:

  • basic necessities
  • equipment and office materials to help run your organisation for the benefit of people in need
  • goods to be used or sold at charity events

You can check which goods you can claim VAT relief for as well as how to claim.

Voluntary National Insurance Contributions

NI Card PictureGaps in your National Insurance record

You may get gaps in your record if you do not pay National Insurance or do not get National Insurance credits. This could be because you were:

  • employed but had low earnings
  • unemployed and were not claiming benefits
  • self-employed but did not pay contributions because of small profits
  • living or working outside the UK

Gaps can mean you will not have enough years of National Insurance contributions to either:

You may be able to pay voluntary contributions to fill any gaps if you’re eligible.  You can check your National Insurance Contributions status here

Decide if you want to pay voluntary contributions

Voluntary contributions do not always increase your State Pension. Contact the Future Pension Centre to find out if you’ll benefit from voluntary contributions.

You may also want to get financial advice before you decide to make voluntary contributions.

Making Tax Digital for VAT

Making-Tax-DigitalAll VAT-registered businesses who have not yet signed up for Making Tax Digital for VAT need to do so.

When to sign up

You must keep digital records from the start of your first Making Tax Digital accounting period.

Your last VAT accounting period before signing up to Making Tax Digital Submit your VAT Return between Do not sign up to Making Tax Digital between Sign up to Making Tax Digital from Your first Making Tax Digital accounting period
1 Jan to 31 Mar 2022 1 Apr to 7 May 2022 28 Apr to 7 May 2022 8 May 2022 1 Apr to 30 Jun 2022
1 Feb to 30 Apr 2022 1 May to 7 Jun 2022 31 May to 7 Jun 2022 8 June 2022 1 May to 31 Jul 2022
1 Mar to 31 May 2022 1 Jun to 7 Jul 2022 29 Jun to 7 Jul 2022 8 Jul 2022 1 Jun to 31 Aug 2022
1 Mar to 31 Mar (monthly submissions) 1 Apr to 7 May 2022 28 Apr to 7 May 8 May 2022 1 Apr to 30 Apr 2022

Before you sign up to Making Tax Digital for VAT you’ll need either:

  • a compatible software package that allows you to keep digital records and submit VAT Returns
  • bridging software to connect non-compatible software (like spreadsheets) to HMRC systems

If you use an agent or accountant, talk to them about what software you need.

Watch a video about getting compatible software.

Gift Aid Declarations

33E713CC-CCCF-4814-B5DB-A033FAEAC0AAA Gift Aid declaration allows charities and community amateur sports clubs (CASCs) to claim tax back on eligible donations.

It’s important that you keep records of declarations and Gift Aid payments.

If you make a Gift Aid claim without collecting a declaration from the donor, HMRC may ask you to repay the equivalent amount in tax.

Declaration formats

A declaration by a donor can be made in writing, verbally or online. Whichever format you use, donors must provide the required information for your Gift Aid claim to be valid.

HMRC template declarations

HMRC provides free template declaration forms for you to use. You don’t have to use a template, but if you do, you can be sure that declarations will meet HMRC’s requirements.

You can include additional information to suit your charity or CASC’s needs, eg reference numbers.

What declarations must include

There is no set design for a declaration form or a verbal declaration, but it must include:

  • the name of your charity or CASC
  • the donor’s full name
  • the donor’s home address
  • whether the declaration covers past, present or future donations or just a single donation
  • a statement that the donor wants Gift Aid to apply (this could be a tick box on a written or online declaration)
  • an explanation that the donor needs to pay the same amount or more of UK Income Tax and/or Capital Gains Tax as all charities and CASCs will claim on the donor’s gifts in a tax year and that the donor is responsible to pay any difference   

For more detailed information click here

What happens if you do not report payroll information on time

D55F3A85-4C8C-4000-8482-9D1DEE8C5C44When penalties are charged

You can get a penalty if:

HMRC will not charge a penalty if:

  • your FPS is late but all reported payments on the FPS are within 3 days of your employees’ payday, however employers who regularly file after the payment date but within 3 days may be contacted or considered for a penalty
  • you’re a new employer and you sent your first FPS within 30 days of paying an employee
  • it’s your first failure in the tax year to send a report on time (this does not apply to employers who register with HMRC as an annual scheme)

How much you pay

What you pay depends on how many employees you have.

Number of employees Monthly penalty
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 or more £400

If you run more than one PAYE scheme, you can be charged penalties for each.

How we estimate what you owe

HMRC may raise a specified charge based on an estimate of how much we think you should pay if you do not:

  • submit your FPS on time
  • tell HMRC, by sending an EPS, that you have not paid any employees

This is based on your previous PAYE payment and filing history. You’ll be able to see any specified charge by looking at your PAYE account online.

A specified charge does not replace the need for you to send your FPS or EPS. Only submitting the missing FPS or EPS for each month will:

  • replace the charges with the amount that is due for each month
  • support an appeal you make against a late filing penalty

If you send updated year-to-date figures in your next FPS instead, the specified charges will remain in place. However, your accounting record will be adjusted to reflect the year-to-date figures given in the later month.

If you get a penalty

HMRC sends penalty notices every quarter. A notice will include:

If you pay the penalty within 30 days of getting the notice you will not be charged interest.

You can appeal if you think:

  • the penalty is not due
  • the amount of the penalty is wrong
  • you had a reasonable excuse for sending your reports late

Reasons you can give for grounds of appeal are:

  • data on the returns was incorrect
  • death or bereavement
  • filing expectation incorrect
  • filed on time
  • fire, flood or natural disaster
  • ill health
  • IT difficulty
  • missed correction or easement
  • no longer have any employees
  • no payments to employees
  • theft or crime
  • other – only use this option if your reason for appeal does not fall into any of the categories in the online system

More information can be found here

Paying an employee after giving them a P45

You need to tell HM Revenue and Customs (HMRC) when one of your employees leaves or retires, and deduct and pay the right tax and National Insurance.

You must give your employee a P45 when they leave.

Paying an employee after giving them a P45

If you have to pay an employee after they leave (including someone you’re giving a taxable redundancy payment over £30,000):

  • use tax code 0T on a ‘week 1’ or ‘month 1’ basis (use the code S0T if they’re taxed at the Scottish rate or C0T if they’re taxed at the Welsh rate)
  • deduct National Insurance (unless it’s a redundancy payment) and any student loan repayments as normal – but if it’s an ‘irregular’ payment like accrued holiday pay or an unexpected bonus, treat it as a weekly payment
  • report the payment and deductions in your next FPS, using the employee’s original ‘Date of leaving’ and payroll ID, and set the ‘Payment after leaving’ indicator
  • give the employee written confirmation of the payment showing the gross amount and deductions
  • add the additional payment in the ‘Year to date’ field if the payment is in the same tax year

The payment should be the only one in the ‘Year to date’ field if it’s being paid in the next tax year.

You must not give the employee another P45

Introduction to PAYE

HMRC PAYE jpegAs an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.

You do not need to register for PAYE if none of your employees are paid £120 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records.

Payments and deductions

When paying your employees through payroll you also need to make deductions for PAYE.

Payments to your employees

Payments to your employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay.

Deductions from their pay

From these payments, you’ll need to deduct tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions.

Reporting pay and deductions

If you run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday.

Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £170 a week.

You’ll need to send another report to claim any reduction on what you owe HMRC, for example for statutory pay.

Paying HMRC

You’ll be able to view what you owe HMRC, based on your reports. You then have to pay HMRC, usually every month.

If you’re a small employer that expects to pay less than £1,500 a month, you can arrange to pay quarterly – contact HMRC’s payment enquiry helpline.

Other things to report

As part of your regular reports, you should tell HMRC when a new employee joins and if an employee’s circumstances change, for example they reach State Pension age or become a director.

You have to run annual reports at the end of the tax year – including telling HMRC about any expenses or benefits.

More details can be found here

Trustee Expenses and Payments

Trustee ExpensesThe concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities. This does not mean that a trustee can never receive any payment or benefit from his or her charity; there are sometimes good reasons why it can be in a charity’s interests to make a payment to a trustee. Trustee boards need, though, to minimise the risks to their charity’s reputation and operation.

Expenses are normally refunds by the charity of costs a trustee has had to meet personally (or which have been met on his or her behalf) in order to carry out trustee duties. In some cases, these expenses may be paid in advance. A refund of properly incurred expenses is not a trustee payment, nor does it count as any kind of personal benefit.

Some types of payment are often confused with expenses, when they are actually trustee benefits which HMRC will consider can be taxed as income. They can only properly be paid out of charity funds if there is suitable authority for doing so.

A charity can pay a trustee for the supply of any services over and above normal trustee duties. The decision to do this must be made by those trustees who will not benefit. They must decide that the service is required by the charity and agree it is in the charity’s best interests to make the payment and must comply with certain other conditions

More detailed information and guidance can be found in this document

Tax Codes

taxcodesYour tax code is used by your employer or pension provider to work out how much Income Tax to take from your pay or pension. HM Revenue and Customs (HMRC) will tell them which code to use.

Find your tax code

Use the check your Income Tax online service within your Personal Tax Account to find your tax code for the current year. You can also view your tax code for:

  • a previous tax year
  • the next tax year

You’ll be asked to sign in with Government Gateway or create an account if you do not already have one.

Once signed in, you can also see:

  • if your tax code has changed
  • how much tax you’re likely to pay

You can also find your tax code on your payslip or tax code letter from HMRC.

If you think your tax code is wrong

If you think your tax code is wrong, you can update your employment details using the check your Income Tax online service.

You can also tell HMRC about a change in income that may have affected your tax code.

Why your tax code might change

HMRC may update your tax code if:

You may also be put on an emergency tax code if you change jobs.