Budget Report 2010 – EducationAs part of the Government's proposal to promote sustainable economic growth over the decade ahead by positioning the UK as a leading centre for research and innovation and ensuring the UK is quipped with skills for growth, the Chancellor announced the introduction of a £270 million Modernisation Fund. This fund will be made available to universities in 2010/11 to enable them to identify and deliver efficiencies over the next four years and fund the teaching costs of 20,000 extra undergraduate places in key courses in September 2010. The Fund will also include £20 million for a shared services pilot scheme to support efficiency programmes between universities. The Chancellor also announced the launch of a £25 million University Enterprise Capital Fund to exploit the commercial potential of the UK's world-class research base. The Government will also consult during summer 2010 on the design of the previously announced Patent Box. We have summarised below some of the announcements affecting education institutions arising from the Budget Report delivered on 24 March 2010. KPMG's general commentary on the 2010 Budget Report can be found at the following link. Extending UK charity tax exemptions and reliefs to EU organisationsCurrently UK charitable tax exemptions and reliefs are only available to UK charities, including universities. Non-UK charities are therefore unable to benefit from these exemptions and reliefs. In addition UK taxpayers are unable to obtain tax relief on donations to non-UK charities. Legislation will be introduced to extend the UK charitable tax exemptions and reliefs to organisations in the EU, Norway and Iceland that satisfy the new definition of “charity” for UK tax purposes. This announcement effectively implements the European Court of Justice ruling in the Hein Persche case. The new definition of “charity” for UK tax purposes will include the requirement for UK charities and EU organisations to demonstrate that their trustees, directors and managers are “fit and proper” persons. For EU organisations that are able to satisfy the new definition of charity this is a positive move as income that would previously have been taxable in UK may now be exempt. These organisations will also now be able to reclaim tax from HM Revenue & Customs (“HMRC”) on eligible Gift Aid donations, i.e. donations from UK and non-UK donors where sufficient UK tax is paid by the donor. This is also a positive move for UK donors who can obtain tax relief for donations to charities in the EU, Norway and Iceland, providing the donation qualifies under the existing Gift Aid rules. The estimated cost to the Exchequer of extending the charitable tax reliefs and exemptions is anticipated to be £200 million by 2018-2019. International expenditureThe existing legislation relating to charitable expenditure treats a payment by a UK charity to an overseas body as non-charitable expenditure unless the charity has taken reasonable steps to ensure the payment will be applied for charitable purposes only. New rules are to be introduced that will require a charity to demonstrate to HMRC that is has taken appropriate checks before the money is sent overseas and that it will monitor how the funds are spent to ensure this is for charitable purposes. It has been noted that account will be taken by HMRC of the circumstances under which the funds were spent, for example it is expected that routine spending of funds would be viewed differently to spending during an international humanitarian emergency. Substantial donorsOf particular note was the disappointing announcement that the anticipated new rules on substantial donors would not be introduced in the forthcoming Finance Bill. It was instead confirmed that the informal consultation with stakeholders would continue to explore the proposed new purpose test. KPMG will continue to be part of the HMRC working party looking at the development of these new rules and we will provide further updates in due course. Income received under Payroll GivingIt was announced that with effect from 24 March 2010 income received by charities under Payroll Giving will now only be exempt from tax to the extent that it is applied for charitable purposes only. This legislative change simply brings donations from Payroll Giving into line with the treatment of income received by charities from other tax effective giving. Gift AidA number of announcements were made in relation to the existing Gift Aid regime, including new rules which will bring donations received from non-UK donors in line with donations from UK donors as regards the recovery of tax where the donor has not paid sufficient UK tax and a requirement for new charities to complete an application form in order to make a claim for repayment of tax on Gift Aid donations. HMRC will also consult with the sector on proposals to restrict the number of in-year repayments that can be claimed by a charity. Corporation tax – Capital allowancesIt is common place for universities to own non-charitable subsidiary companies; the announcements relating to capital allowances may be applicable to such companies and therefore of interest to univerisities. Since 1 April 2008, the majority of businesses in the UK have been able to claim the annual investment allowance (“AIA”) on up to £50,000 of qualifying expenditure, effectively giving tax relief for 100% of the first £50,000 of qualifying additions. The Chancellor announced that the AIA will be increased to £100,000 for qualifying expenditure incurred from 1 April 2010. The list of energy-saving items qualifying for enhanced capital allowances has also been extended. VATVAT rate remains at 17.5%As expected, the Chancellor did not announce any changes to VAT rates in the Budget. However, there is widespread speculation that the standard rate will rise soon after the General Election, whatever the make-up of the next government. Under EU law, the standard rate of VAT can be set between 15 and 25 per cent. The average in the rest of the EU is now 20.14 per cent, and some countries have already announced further rises in the summer, so any UK government should be able to argue that a rise in the VAT rate will not hurt UK competitiveness. Universities should be planning now for these increases. Measures to consider include:
VAT recovery and partial exemptionIf VAT rates rise, it will become even more important that universities recover all of the VAT they are entitled to. Cost sharing exemptionWorking together with other universities, for instance in a procurement consortium, can lead to substantial savings for all involved. However, if VAT has to be charged between the parties, this can eliminate these savings. Scope exists within EU law for certain cost-sharing between not-for-profit bodies to be exempt. The Government has announced in the budget that it will work with charities and other affected sectors to consider the potential for introducing such an exemption into UK law. KPMG has been working with representative bodies in several sectors, including housing, to lobby for this change. We are pleased that the Government has now made a firm commitment to look at this matter further. Penalty regimeSeveral indirect taxes, including VAT, are being brought into line with the penalty regime for direct taxes. There will now be separate penalties for late filing of returns, as well as late payment of the tax due. Both sets of penalties are on sliding scales and recognise that some returns are filed monthly and others quarterly. Other indirect tax changesFollowing recent legal challenges, some services provided by the Royal Mail will now become subject to VAT, including services from Parcelforce, which may increase postage costs for some housing associations. These changes will come into effect after January 2011. A new indirect tax has been introduced - landline duty - at a rate of 50 pence per line per month. While this is charged to the owners of the telephone system, it is expected that they will seek to pass this cost on to consumers. Green taxes continue to increase. In particular, the rate of landfill tax has risen sharply, increasing from £40 per tonne this year, to £48 from 1 April 2010 and £56 per tonne in 2011. These rises are likely to increase cost pressures on developments. Employment TaxEmployer Supported Childcare VouchersA relaxation will be made to the conditions applicable to childcare vouchers and directly contracted childcare schemes delivered through salary sacrifice arrangements, for those employees at or near the National Minimum Wage (“NMW”). Where salary sacrifice arrangements have been introduced some employers have excluded employees with earnings at or near the NMW. Where such arrangements are made without being “available generally” to all employees, the exemption from being a chargeable benefit will not apply and the provision of childcare will be taxable. The Government now plans to relax the “available generally” condition in respect of low-paid employees so that the exemption from taxability will apply to salary sacrifice arrangements for childcare vouchers or directly contracted childcare. This applies retrospectively for the tax year 2005/06 and subsequent tax years. Company Cars and Vans - Zero Emission vehicles and benefit chargeTwo measures will be introduced to change the chargeable benefit in kind on company cars and vans for five years from 6 April 2010 to 5 April 2015. The first change is full relief from the chargeable benefit in kind on company cars and vans which cannot produce more than 0gm per km CO2 engine emissions under any circumstances when driven. The second change reduces the chargeable benefit in kind on company cars which have an approved CO2 emissions figure of exactly 75g per km or less. Arrears of Tax - PAYELegislation in the Finance Bill 2010 will introduce powers for HMRC to require a financial security from employers who have a history of serious non-compliance in terms of paying late or not paying their pay as you earn (PAYE) income tax. The detail will be set out in regulations, which will be published for consultation before they are made. The measure will affect those who are determined not to pay and will not affect those who need time to pay and who make payment arrangements with HMRC. The measure introduces a new criminal offence where a person required to give a security fails to do so. If the person is found guilty of the offence they may be fined up to £5,000. The intention is that the new powers will come into effect from 6 April 2011. UK universities with education activities in ChinaThe commentary below, which is not part of the 2010 Budget, regarding the tax position of foreign institutions operating in China may be of interest to those UK universities with overseas education activities. Since the implementation of the Corporate Income Tax (“CIT”) Law and Business Tax (“BT”) Regulations in China in 2008 and 2009 respectively, the State Administration of Taxation (“SAT”) has strengthened the tax administration and registration requirements of foreign taxpayers. Foreign taxpayers are required to perform tax registrations and periodic tax filings should they conduct any taxable activities in China. They are also required to obtain tax clearance/exemption certificates before they can get payments made out of China. In February 2010 the SAT issued a circular and identified education institutions as one of its investigation targets. It is therefore expected that the local tax authorities will soon start making enquires on Sino-foreign education institutions and programmes. In view of the current uncertainty around the BT and CIT positions for Sino-foreign education activities, the tax authorities may take an aggressive approach and challenge foreign education institutions conducting Sino-foreign education activities as having constituted a permanent establishment in China. Tuition fees income, though collected and administered by the PRC partners in most cases, may also be subject to PRC taxes. Moreover, individual teachers and the administrative staff who are involved in these Sino-foreign education activities could also be challenged for their Individual Income Tax positions. Without clearing these tax issues, a UK university may not be able to remit income out of China. It is recommended that UK universities with activities in China perform a high-level review on their current education activities to assess the current risk level and the potential exposure. ContactsIf you have any queries regarding any of the announcements in the 2010 Budget Report, please contact one of the national Education Tax team below or your local KPMG contact.
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Unsubscribe | Privacy | Legal © 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. The Budget Report proposals and other tax changes are summarised on these pages. The Budget Report proposals may, however, be amended significantly before enactment. The content of this communication is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining liability to tax or determining investment strategy in specific circumstances. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG LLP, 8 Salisbury Square, London, EC4Y 8BB Designed and produced by UK Design Services. |
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