HMRC heeds CFDG advice over partial exemption

3rd April 2009

HMRC has announced the changes to the VAT partial exemption system that were advocated by the Charity Finance Directors' Group in their response to HMRC's consultation of September 2008. We are pleased to note this on-going evidence of the success of CFDG's advocacy work, which aims to reduce the burden of red-tape on charities and to promote flexible, proportionate legislation for the sector.

CFDG supported the changes that have now been introduced, namely charities' ability to use an in-year provisional recovery rate, make an early annual adjustment as part of their year-end VAT return and recover their input tax on the basis of use when they are newly partially exempt.

CFDG also suggested that the introduction of alternative 'standard methods' would provide little additional benefit, and could pave the way for the revocation of tailored 'special methods', which are very valuable to the sector. We are pleased to see that HMRC have not brought this proposal into the forthcoming legislation.

In the next stages of their simplification programme HMRC will be looking at the de minimis rules and a combined business non-business method. CFDG have supported the suggestion of a combined method, but we would urge HRMC to heed our response to the consultation and to ensure that any changes maintain charities' confidence in the methods that they use and do not increase undue fear of tax recovery. In addition, HMRC should recognise that the real difficulty of this area lies in gathering the data and in allocating income and expenditure between business and non-business.

You can find CFDG's response to the VAT partial exemption and capital goods scheme consultation here.

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Notes to Editor:

1. For further information please contact our Policy and Campaigns Officer, Kate Hand on Tel: 020 7785 6419.

2.The Charity Finance Directors' Group (www.cfdg.org.uk) was set up in 1987 and is an umbrella group that specialises in helping charities to manage their finance-related functions. CFDG's circa 1,600 members are responsible for the finances of charities with a wide variety of income levels. Between them our members manage some £14.7 billion in charity income per year.

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