I can imagine the headline may raise a few eyebrows, but with the VAT increase happening today I thought it made sense to raise the issue again and test the validity of such a statement. The legislation is open to any individuals/types of organisation to use to tackle particular issues, but organising information thats useful to particular stakeholder groups such as Charities must surely be encouraged, especially in these challenging times.
The Charity Tax Group brought out figures suggesting the new VAT rate would see the combined Charity VAT bill increase to £1.5 billion pounds annually. I think correct use of the CIC legislation by Charities could easily reduce the bill by 10% at least (and that's being conservative). Other than awareness ive still had no real reason as to why it couldnt in all the conversations ive had so far, and in some cases it could be the difference between survival or not.
Its not scientific but over Christmas I watched BBC news reporting 25% of Manchester Charities may close in 2011, extrapolate that and the wider challenge facing Charity seems truly enormous. Its not a magic wand but CIC will provide options. Of course there will be areas that this wont work and there are a few caveats but 10% is not unreasonable. There are examples of it happening already and in many ways it quite a simple, logical step to take.
Very simply form a CIC subsidiary thats wholly owned by the Charity. (This can also be used to make Charities more efficient when bidding for new public sector contracts) As a CIC, the asset lock and community benefit test give reassurance to the Charity Trustees that profits are locked in and cant be stripped out of the subsidiary. The CIC is used to generate trading income and can reclaim VAT on its expenditure, potentially saving £200 per £1000 when compared with the cost for a stand alone Charity. The CIC profits can be donated to the Charity, mitigating any corporate tax liability.
Anyway, please do add to the debate, whatever your opinion - I think this is a key area we should focus on and your opinions will help keep us on point.
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