Much like churches, shops come in all shapes and sizes. At one extreme there is the small church bookshop, operating from the church premises most likely after church services and other events have finished. Although there will be some considerations to think through, they are likely to be minimal. At the other extreme, operating a trading shop from commercial premises with the aim of raising funds or furthering the charitable activities of the church will require considerably more thought and planning.
Why do it?
Regardless of the size and nature of the proposed shop, the most important question of all to consider is 'why do you want to run a shop, what is its purpose?'. The bookshop might be intended to help church attendees grow in their discipleship and walk with God. A café might be a bridge into the community, raising the profile of the church and providing an evangelical opportunity. A commercial trading operation may seek to help the needy, or may provide funds for the church to use in other ways.
The list of what to think about grows longer as the size of the shop increases (see below), but the first and most important question is always 'why does our church want to run a shop?' A casual glance down most town High Streets confirms that many shops fail, so as a church you need to understand why, and also be confident that you have, or can obtain, the necessary skills and experience to make it work.
If you can't come up with a solid God-led answer to the 'why' question, or are not confident that you can access the necessary skills and experience, we suggest that you go no further.
Some stuff to think about
If it is in the church, then where does a shop fit? Often after church services, churches are active places, perhaps with children running around and refreshments being served to facilitate conversation and fellowship. Yes, you want your shop to fulfil its purpose, but maybe not to the detriment of other activities or ministries, so deciding where it goes needs a little thought...
If it is in the church, then where does a shop fit? Often after church services, churches are active places, perhaps with children running around and refreshments being served to facilitate conversation and fellowship. Yes, you want your shop to fulfil its purpose, but maybe not to the detriment of other activities or ministries, so deciding where it goes needs a little thought.
If you are looking outside the church then premises and location are very important. Using your “why” question as a starting point, we would suggest that you do your homework. You might want to consider:
1. The community that you are seeking to attract
2. The prominence of any site
3. The footfall within the locality
Look and feel is always important and disabled access is likely to be a consideration too.
Remember that if you take on premises that are currently being used for purposes other than as a shop, you will need to get permission for change of use. Depending upon where you are situated, this may not always be forthcoming.
Again, for the church bookshop this is likely to be a relatively straightforward answer however, for an off-site operation, perhaps not so.
Again, for the church bookshop this is likely to be a relatively straightforward answer however, for an off-site operation, perhaps not so. If a trading operation for example, do you want to keep the same trading hours as other shops in the locality? If you do, where are you going to get your staff from? For a café similar considerations apply. Day time coffee shops are attractive to those at home during the day, breakfast and evening cafes are perhaps more suitable to commuter communities. The same staffing considerations will apply.
Having the right people staffing your shop is important...
Having the right people staffing your shop is important. While Christians in the church may be forgiving if one week the bookshop is not open, this will not be the case for an offsite café or shop which will trade in part on its reliability and is in competition with wholly commercial operations. Staff can be employees, volunteers or more likely a combination of the two but it is important that the right people are found. Using people that have commercial skills or experience will give the shop the best chance of success; relying on something akin to the flower rota to staff a shop probably will not.
Whether using employees or volunteers there are aspects of legislation that you need to be aware of and comply with. These range from insurance, through payroll and minimum wage requirements, to health and safety considerations. Do not let the amount of necessary requirements put you off, but on the other hand don’t bury your head in the sand, because they will not go away and may come back to bite if not properly dealt with.
www.gov.uk/employing-staff offers a checklist of 6 things to consider when employing staff. For more detail see www.acas.org.uk/media/pdf/d/m/Employing-people-a-handbook-for-new-firms-accessible-version.pdf which provides a more extensive but useful handbook.
It might be right for some shops to operate as an integral part of the church.
It might be right for some shops to operate as an integral part of the church. This will mean that the governance and operation of the shop rests with the church trustees and that the financial records of the shop will form an integral part of the church accounts. For other shops, it might be right that they are set-up as separate legal entities entirely separate from the church having their own governance structures and accounting records. Two aspects help contribute to making this decision; rules regarding trading and concerns about image.
Guidance is provided by the Charities Commission setting out when and how charities may engage in trading. Although it is mostly directed at trading to raise funds it does explain when a separate trading company should be established to carry on such activity. The guidance states that trading subsidiaries must be used for non-primary purpose trading that includes significant risk. The whole guidance can be found at us tax www.charitycommission.gov.uk/publications/cc35.aspx .
In parallel, HMRC also issues guidance to explain the various tax rules relating to trading within charities. This can be found at www.hmrc.gov.uk/charities/guidance-notes/annex4/sectiona.htm#1 .
The image consideration is not concerned with the legality of trading, but rather the more intangible issue of what the shop says about the church. You will need to consider whether the shop should carry the church name; what this says to the local community; how it plays into the perception and purpose of the church.
Certain trades will require skilled and qualified staff to operate; others might require licencing or perhaps other legal checks to be undertaken...
Certain trades will require skilled and qualified staff to operate; others might require licencing or perhaps other legal checks to be undertaken. Cafés will need to meet food and hygiene regulations; activities involving looking after children will require a child safety policy and the possibility that staff and volunteers are vetted using a Disclosure and Barring Scheme (DBS) check www.ccpas.co.uk , and premises playing background music will need a music licence www.ccli.com . You are not able to rely on the fact that your church has a music licence, as licences tend to be location specific.
Health and safety, risk assessment and other legal requirements might also come into play. Make sure that any shop complies with consumer law and sells goods of an appropriate quality. For example, selling electrical goods or furniture (particularly second hand) requires goods to be checked beforehand and certified as safe.
It is important that the financial trading activity of the shop be properly accounted for...
It is important that the financial trading activity of the shop be properly accounted for.Â For larger offsite shops that will often operate as a separate legal entity, records will have to be maintained independently from those held for the church.Â A small on-site bookstore may be accounted for within the finances of the church, perhaps as a sub-account.Â The accounting treatment will follow the legal and image considerations covered under 4 above.
Tax can be quite complex and particularly for larger shops seeking a degree of professional advice before you go too far down the line is likely to be appropriate.Â At a very broad level, charity shops often benefit from being exempted from corporation tax and are zero rated for VAT on the sale of donated (although not new) goods.Â HMRC issues guidance that relates both to direct and indirect taxation.Â This guidance can be found at www.hmrc.gov.uk/charities/tax/trading/exemptions.htm for direct taxation and for indirect taxation at www.hmrc.gov.uk/charities/vat/intro.htm .Â
Charity shops might also benefit from a reduction in non-domestic business rates.Â Eligibility for this reduction will depend upon what the shop is selling and also how it is structured.Â Your local council should be able to tell you more about this.Â
Normally, donations of goods for sale do not qualify for Gift Aid as this can only be applied to gifts of money.Â However, there is an arrangement that exists which is often referred to as the â€œRetail Gift Aid Schemeâ€ in which the charity acts as an agent for its supporters, selling goods on their behalf in the hope that the donor will then donate the sale proceeds.Â Details of how this scheme operates can be found at www.hmrc.gov.uk/charities/gift_aid/rules/retail.htm
If the answer to your opening 'why' question is a solid God-led yes, and if you believe that you have the necessary skills and experience; then however daunting the practical aspects might appear to be, they can all be tackled with care, a little research, and a great deal of enthusiasm.
Have you tried to submit an R68(i) Gift Aid form since 30 September 2013? Have you had your claim rejected? Are you wondering what to do next?
It is true that HMRC are no longer accepting form R68(i) as a valid way to claim Gift Aid and are now returning claims made in that way. However, don’t despair, there are other ways in which claims can now be submitted and our briefing note is a practical guide to help you decide what you need to do now.
We know that for many churches Gift Aid recovery is a vital part of their operational cash flow, and we would therefore urge you to read this note and to act as soon as possible.
The method for claiming Gift Aid has changed and despite lobbying by Stewardship and other charities, the transitional period for continuing to claim using the old R68i claims form is still expected to finish on 30th September 2013. This means that those charities that have not started to use the new Charities Online claims method, or worse still have not even planned for this transition may suffer potentially serious cash flow problems.
For those charities still not using Charities Online after the end of September, Gift Aid claim repayments are likely to be delayed for a considerable period whilst the charity moves over to the new online claim system. If Gift Aid reclaims form a significant and integral part of your church’s cash flow it is important that you start to use Charities Online immediately and warn those responsible for looking after the finances that there may be an interruption in the flow of Gift Aid claims.
Experiences of using the new system are mixed. Some are finding a few teething problems which , with a little up-front time and patience appear to be manageable; whereas others have encountered significant problems which have proved very slow to resolve. However, the alternative new paper based claims form is, as anticipated, proving to be extremely time consuming to complete.
If you are unsure how to move to Charities Online to make Gift Aid claims, then we would point you to our Briefing Note (Charities Online - a guide to Gift Aid claims from April 2013, to provide some assistance. However you choose to proceed, there is no more time left to ignore this issue. You must act now or risk the consequences of an interrupted flow of Gift Aid.
A reminder that the new reduced rate of Inheritance Tax is now in force. It applies to deaths occurring after 5 April 2012. Where more than 10% of the net estate is given to charity, the rate of tax applying to the rest of the estate is reduced from 40% to 36%. Charitable gifts are of course tax exempt.
There are two main actions: First, consider whether you should be giving 10% or more to charity in your own Will. Second, if you are a beneficiary under the Will of someone who has died since April, you may wish to consider entering into a Deed of Variation to make or increase the charitable gifts in order to qualify for the lower rate.
Are you taking advantage of this reduced rate? Leave your comments and questions below.
The Scotland Act 2012 received Royal Assent on 1 May 2012.
The Act gives the Scottish Parliament the power to set a Scottish rate of income tax to be administered by HMRC. Applying to the non savings income of Scottish taxpayers and expected to be implemented from April 2016, it provides for a number of taxes to be devolved to Scotland, including land taxes.
The definition of a Scottish taxpayer is based on the location of an individual’s main place of residence. So, a Scottish taxpayer could be employed by an English (or Welsh or Northern Irish) employer who will have to apply the Scottish rate of income tax.
Each main rate of UK income tax (that is, the basic, higher and additional rates) will be reduced by 10%. At the same time, the Scottish Parliament will set a rate that may be higher or lower than 10% and will be added to the main UK rates (as reduced). So, if the UK basic rate is 20% and the higher rate 40% and, at the same time, the Scottish rate is set at 12%, Scottish taxpayers will pay a basic rate of 22% (20% less 10% plus 12%) and higher rate taxpayers 42%. Similarly, if the Scottish rate is set at below 10%, Scottish taxpayers will pay a lower overall rate of tax than taxpayers elsewhere in the UK.
Savings and dividend income of Scottish taxpayers will be taxed at the main UK rate and is unaffected by the Scottish rate. An added complexity!
This all clearly has implications for charitable giving and Gift Aid – which have been discussed by an HMRC high level technical group on which Stewardship was represented. We concluded that it would be unduly complex both for charities and for taxpayers if Gift Aid donations were to be made by reference to the Scottish basic rate of tax. Therefore Gift Aid will continue as now. When a donor makes a gift to charity, after April 2016, they will be deemed to have deducted tax at the UK basic rate and not the Scottish basic rate.
However, the charity is not concerned with the claiming of higher or additional rate relief. This is claimed by the donor on their personal tax return. Accordingly, where a higher or additional rate taxpayer wishes to claim relief on the gross value of their charitable donations, this will be calculated on the difference between the Scottish rates only. So, if the Scottish rate is set at 12% such that the Scottish higher rate is 42% and the Scottish basic rate is 22%, the calculation will be on the difference between 42% and 22%.
Note: the deemed gross value of a charitable donation by a Scottish taxpayer, for the purposes of the higher or additional rate relief only, will be grossed up at the Scottish basic rate rather than the UK rate. This means that the value of the higher / additional rate relief may differ slightly from a donor in the rest of the UK.
For example, if a non Scottish UK donor makes a gift of £100 to charity, the value of the gift grossed up at the UK rate of 20% is £125. Higher rate relief is calculated on £125. If a Scottish donor makes a gift of £100 and the Scottish basic rate is 22% (as above), the grossed up value of their gift is £128.21. The higher rate relief will be based on this figure and not £125 despite the fact that the charity will always reclaim the basic rate tax of £25 (ie the UK wide rate) regardless of the geographical location of the donor.
Gifts made by Scottish taxpayers under the payroll giving scheme will always be calculated at the Scottish rates. This is because the donor’s PAYE code will identify them as a Scottish taxpayer – even if they work for a UK employer based outside Scotland (for example where the taxpayer lives in Scotland but goes to work the other side of the border).
Relief for gifts of shares or property to charity that qualify for income tax relief is given through the self assessment tax return. The charity does not claim income tax relief on these gifts as it is all given to the donor. As such, it is a straightforward process for all of the relief to be given at the Scottish rates.
A Technical Note (‘Clarifying the Scope of the Scottish Rate of Income Tax’) has now been published and HMRC are inviting comments until 31 August 2012. To access your copy of the Note, click here.
The Finance Act 2010 introduced a requirement that, to qualify as a charity for tax purposes, the charity must meet a ‘management condition’. This condition is satisfied if all of the charity’s ‘managers’ are ‘fit and proper persons’. If a charity fails this test then HMRC can refuse or cancel its ‘tax status’; meaning that it will no longer be eligible for charity tax benefits such as Gift Aid.
As this requirement covers the charity’s ‘managers’, it goes beyond the trustees and may include employees and volunteers. Broadly, the ‘managers’ are those people who are appointed to positions of trust or influence in the charity and whom are able to exert control or influence over the charity’s finances and tax affairs. HMRC will expect the charity trustees to be able to show, if asked, that they have given proper consideration to the suitability of persons appointed to these positions – i.e. that they are ‘fit and proper’ persons.
No definition of what constitutes ‘fit and proper’ is provided, but HMRC’s criteria goes beyond that applied when looking at whether someone is fit to be a trustee.
Some factors that may lead the HMRC to conclude that a person is not fit and proper if:
It is up to the charity to ensure that managers are fit and proper. HMRC’s working position is an assumption that the charity has given sufficient and proper consideration to the suitability of their managers.
To assist charities to evidence this process, HMRC has provided a suggested (non mandatory) procedure that charities may wish to follow when appointing trustees and managers. This takes the form of a basic guide which the prospective manager can read before signing a declaration of their ‘fit and proper’ status. Whilst this may be relatively easy to use in the more formal relationships of a commercial environment, it becomes far more sensitive within the setting of the ‘church family’.
Most church appointments, whether to the role of trustee, manager or worker, are drawn from a pool of people who are quite well-known and whose backgrounds are ‘known’ within the church. Not many churches that we are aware of make use of the HMRC’s guidelines and declaration, seemingly preferring to rely more on established personal relationships. There are occasions when charities have found themselves using staff or volunteers with a history that has some ‘bad bits’ which they may or may not know. HMRC may not take a generous view if this happens. This is rare but means this is another area where striking a suitable balance is a delicate task for the charity and its trustees.
More details on HMRC’s fit and proper requirements including the basic guide and a pro forma declaration can be found at www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp-persons-test.htm .
Stewardship backs campaign demanding that the Government reconsiders controversial plans to cap tax relief on charitable giving.
UPDATE - 23/05/2012
The national media picked up on the announcement in the Budget of a proposed cap on tax relief for charitable giving. Stewardship has been working hard behind the scenes to evaluate the likely cost of the proposal and its impact on the sector, while also providing commentary to the national and sector press. Analysis reveals the likely impact on philanthropy and the economic effects are complex but are likely to be negative for both the sector and the Exchequer.
One thing is clear: this measure will impact small and large charities alike – and small as well as large donations to those charities.
Having met with HMRC officials, the Treasury and with David Gauke, the Exchequer Secretary to the Treasury, our team are now in the process of drawing up a comprehensive Briefing Paper. The intention of the Paper will be to inform Christians of the issues, so that intelligent responses can be given to the Public Consultation promised by the Coalition Government for this Summer. Watch out for a special edition of ‘Legal Eagle’ announcing the new Paper.
Stewardship has signed up to the giveitbackgeorge campaign to ask the government to make a U-turn on its proposal to a cap on big charitable donations.
We urge readers to find out about the issues, the threat to charities’ income as a result of the introduction of a cap and to support the campaign, both as individuals and organisations.
What is it all about?
If the recent Budget announcement goes ahead, as of April 2013, relief will be limited to the tax on £50,000 of charitable giving, or a quarter of the donor’s income, whichever is greater.
Under current rules, taxpayers can claim tax relief on the income from which they make charitable donations. For basic rate taxpayers, the relief is claimed by the charity. For higher rate taxpayers, they can personally reclaim the difference between the tax they pay and the basic rate claimed by the charity.
Why does this matter?
Within the church, and the faith sector in general, personal levels of giving are much higher than amongst charities in general. Many donors give quietly and sacrificially and some donors even work out how much they need to live on, and from their very significant income, choose to give the rest away to charity.
In a survey conducted by CAF, nine out of ten top charity executives said that the planned cap would hit donations hard and revealed that Britain’s richest seven per cent were responsible for almost half of their total donations received last year. The latest Sunday Times Giving List also reports that the top 100 donors gave a total of £1.67 billion out of the UK’s £11 billion annual giving total.
Because major donors give very intentionally, a withdrawal of tax relief will mean not only less tax relief to charities, but a reduction in the actual gifts that come to charity.
Our preliminary calculations suggest that this reduction could mean 30% less giving coming into the charity sector, including churches. And that is before any tax relief is given.
This measure is not about tax avoidance, or fraud on charitable gifts, nor is it about charities not operating for the good of society. And it is not really a bid to stop the rich from using charitable donations to cut their tax bills because the Government’s own estimates of the resultant savings are just too small.
Our hope is that this measure was a last minute, ill-conceived addition to a budget designed to demonstrate to the public that the government is prepared to be tough with those it believes should be paying taxes, but are able to use the assortment of tax reliefs available to reduce this obligation to well below the basic rate.
In so doing, tax reliefs available to those giving most generously and sacrificially have been innocently swept up in the process.
In engaging with major donors over the last few weeks, we have been struck by the humble approach of these people; by their compassion and love for their neighbour, and their clear motivation, far from obtaining tax relief, is to personally contribute to making society a better place to live in. But, they are sadly reflecting that the cap will inevitably mean that they will have to reduce their giving from next year.
One donor indicated that they would emigrate, with their family, to enable them to restore their philanthropic objectives. Others may hold back from making larger gifts until more favourable measures are in place, or throttle back their giving during their lifetime and instead leave a larger legacy many years in the future. If this is repeated by others, the Government will lose more than their support for society; they will lose tax revenues from whole families that would otherwise have continued in the years to come.
Stewardship is keeping the pressure up to see this measure removed. We are engaging with HM Revenue & Customs, with HM Treasury and with Treasury Ministers directly to help represent the voice of Christian giving in the UK, where we know sacrificial giving is most prevalent.
The UK has long been recognised as one of the most generous in the world. However, if George Osborne’s changes take effect in April 2013 it will not be the rich who suffer, but the poorest in society.
Please join us in seeing this proposal defeated before it is too late:
For more information…
General enquiries, please contact Bethan Walker on 020 8418 8167.
Individuals who are directly affected by this proposal, please contact Kevin Russell, Technical Director via [email protected]
The Government proposes, from April 2013, to restrict the tax relief for charitable gifts – whether under gift aid, payroll giving, or gifts of shares, and land and property. Whilst this will not impact on most donors, major and sacrificial giving will be impacted. Anyone who gives a gift aid gift or gifts in a year of over £40,000 may see their tax relief restricted, and may even find that they have to pay HMRC for the privilege.
If you do personally make large gifts to charity that could be affected, would you be prepared to help us resist this measure? We need evidence of the potential impact to take to HMRC and the Treasury. If you would be prepared to speak to us about your personal experience, send an e mail to [email protected] with a contact telephone number. Anonymity can be protected where requested.
image courtesy of www.giveitbackgeorge.org
blogs by the Stewardship team and selected guest writers.