Introduction Background Note
54.Payroll Giving is a scheme through which an employee may authorise their employer to make a payment out of the employee’s salary to a payroll giving agent. For a small fee, the agent makes the payment to the charity or charities specified by the employee. The amount of the donation by the employee is exempt from tax.
55.Paragraph 1 aligns the treatment of donation income under payroll giving in the hands of a charitable trust or charitable company with the treatment of other donation income. Gifts made under payroll giving on or after 24 March 2010 will be exempt from tax in the hands of the charity only to the extent the income is spent on charitable purposes.
56.A charity may claim relief from tax on overseas expenditure provided the money is spent on charitable purposes. In order to show that the overseas expenditure is for charitable purposes, section 547(b) of ITA (for charitable trusts) and section 500(b) of CTA (for charitable companies) require the trustees to take “such steps as are reasonable in the circumstances to ensure that the payment will be applied for charitable purposes”.
57.Paragraph 2 amends section 547(b) of ITA (for charitable trusts) and section 500(b) of CTA (for charitable companies) to make clear that any claim that a payment overseas qualifies for relief as charitable expenditure must be supported by evidence sufficient to satisfy the Commissioners for HMRC that the charity’s trustees took reasonable steps to ensure the money would be spent charitably.
58.In practice that means charities will be required to maintain records of how charitable funds are spent overseas and be able to produce evidence of charitable works undertaken. The level of record-keeping required will depend upon the circumstances relating to the expenditure. For example, it may not be possible for a charity providing aid during an emergency to maintain the same level of record-keeping as for routine overseas expenditure.
59.Paragraph 3 amends the Gift Aid rules that apply to donations made by non-UK resident donors under Gift Aid where the donor has not paid enough tax to cover the repayment of tax to the charity. Under the old rules, where a non-UK resident donor has not paid enough UK tax to cover the tax repayment due to a charity on a Gift Aid donation, the whole of the donation is disqualified from Gift Aid under section 422 of ITA. The donation is not a qualifying donation and the charity is required to repay any repayment of tax claimed under Gift Aid. This is different from the approach applied to a UK resident donor who, in the same situation, is entitled to apply Gift Aid to the whole donation, but is liable themselves to make good the shortfall in tax.
60.The repeal of section 422 of ITA aligns the position for both UK and non-UK resident donors: where an individual donor has not paid enough UK tax to cover a donation under Gift Aid, then Gift Aid may apply to the whole donation and the donor is liable to make up any shortfall in tax.
61.HMRC have allowed charitable trusts and charitable companies to submit tax repayment claims in advance of filing a tax return under their powers of care and management, although in law some trusts and all companies are allowed to make a claim only in a return. Paragraphs 4 to 7 of this Schedule put on a statutory footing HMRC’s procedure of making Gift Aid tax repayments on claims outside a return. They also give HMRC the power to prescribe the Gift Aid claim process.