The impact of a 2.5% rise in VAT can be easily under-estimated: organisations only have until 4 January 2011 to make provision.
Charities are among those set to lose the most from the new 20% VAT rate as the increase cannot be passed onto customers. The Charity Tax Group predicts an irrecoverable loss of around £145 million a year as charities that deliver services at fixed or reduced costs absorb the increase. This is because the VAT system (based on the EU's Sixth VAT Directive) treats charities as the final consumer.
The rise is predicted to hit smaller charities hardest as those with a total income of less than £30 million will be impacted disproportionately: VAT accounts for 3.6% of their income compared to 2.3% for larger charities with an income of over £30 million. In October Labour’s parliamentary review of the amendments to the Finance Bill to prevent the increase applying to charities’’ charitable non-business activities was rejected.
Local authorities have to pay VAT on many of the goods and services they buy in. LAs also have to charge VAT on certain goods and services they provide to customers. There has been some debate on the VAT status of goods for education purposes and CIPFA has taken this up with HMRC.
Rob Allison, Managing Director, Zurich Municipal, says: “For many public service organisations the VAT increase will present a new business risk. At a time when so many organisations will be making strategic decisions in response to budget cuts and re-organisation, attention may be distracted from planning for and managing the change to the new VAT rate.”
Insurance Premium Tax increase
From 4 January 2011 the UK Insurance Premium Tax (IPT) rates are changing: the standard rate will increase from 5% to 6% and the higher rate will increase from 17.5% to 20%.
Most general insurance policies covering UK risks are subject to IPT. The tax is calculated on the value of premiums received under insurance contracts covering risks located in the United Kingdom.
To find out more, go to: www.hmrc.gov.uk
For further information for charities go to: www.civilsociety.co.uk www.acevo.org.uk, www.ctrg.org.uk and www.thirdsector.co.uk
For further information for local authorities go to CIPFA’s website: www.tisonline.net
Zurich Insurance plc is not responsible for the content of external websites
