Clause 21 - Business gifts
Finance Bill
10:00 am
Mr Stephen O'Brien (Eddisbury, Conservative)
At first blush, the calendar year would be the simplest system, but for administrative reasons—and therefore to reduce the regulatory burden—there may be a better way of picking the ''same year''. Personally, I would take the hon. Gentleman's suggestion, but I am raising the matter to tease out the issues. It is a Parkinson's law issue, because although the provision looks small, the hassle factor could be severe.
Another issue has been raised with me and it may have been raised with other Opposition parties. The Charities' Tax Reform Group has come up with a significant point, which I urge the Minister seriously to
consider in order to make the necessary clarification and adjustment on Report. Like all of us, charities say that simplification and clarification are desirable, but there is a problem:
''Although it was clearly not the Government's intention to target charities by introducing this measure,''
the Charities' Tax Reform Group is
''concerned that charities may inadvertently be affected by it. This is because, under Schedule 4, paragraph 5 of the 1984 VAT Act, the making of a succession of gifts by a taxpayer to the same person is a deemed supply. This can be beneficial to charities (and other not for profit organisations) in that they distribute zero-rated literature to their supporters/contacts to keep them updated on developments within the charity.
Where this activity is not a taxable supply in its own right, (eg a formal subscription to a membership organisation) the activity is a deemed supply at the zero rate. The consequence of this is an ability to recover a proportion of the VAT incurred on related costs.''
It goes on to say:
''Clause 21 would remove from the deemed supply any succession of gifts where the cost to the provider''—
that is the charity—
''of the gifts is less than £50 in any given 12-month period.''
It continues:
''As it is very unlikely that any charity will spend anything near £50 a year on newsletters for their supporters, this proposed change will prevent the charity being able to treat the activity as a deemed taxable supply. Consequently, the charity will lose the ability to recover the input tax associated with supplying the newsletter—adding yet more irrecoverable VAT to the £500 million that charities pay each year.''
It then goes on to cite at some length—I will not take up the Committee's time by putting it on the record—the technical adviser, Peter Jenkins from Ernst and Young. He has gone through the provisions in great detail. The Charities' Tax Reform Group has reasonably and responsibly said:
''If this clause goes ahead, we are concerned that Customs might not accept the technical interpretation that we outline above. We should therefore be most grateful if Ministers could confirm that it was not the intention to affect the present arrangements and that the status quo could continue for charities, ie they can continue to treat the supply of the newsletters as a deemed supply and recover a proportion of input tax on related costs.''
It goes on to say, which is why I believe it is a very constructive representation:
''Such a ministerial assurance would help clarify matters and prevent charities having to enter into detailed technical negotiations with Customs and Excise.''
I am sure that all Committee members would regard that as a sensible and appropriate approach. If any adjustment is to be made, I hope that the Economic Secretary will reflect on those points and make adjustments on Report. If that is not the case, we reserve the right to try and do the same.