Donations to ‘Approved Bodies’ Tax Relief

New Scheme of Tax Relief for Donations to ‘Approved Bodies’ i.e. Charities, Schools etc.

Introduction

Section 45 Finance Act 2001 inserts a new section 848A and Schedule 26A into the Taxes Consolidation Act 1997 to provide for a new uniform scheme of tax relief for donations to certain approved bodies which, as well as introducing new reliefs for donations to domestic charities, schools etc., also merges almost all of the existing reliefs under the umbrella of a single scheme. Different arrangements apply for individual and corporate donations as set out below.

Who are the ‘Approved Bodies’ for the purposes of the new scheme?

The following are ‘approved bodies’ for the purposes of the scheme :

• Charities, which are authorised by Revenue for the purposes of the Scheme. Applicant charities must meet certain conditions, including the condition that the charity has been exempted from tax (i.e. holds a CHY exemption) for a period of 3 years. Where a charity wishes to apply for an authorisation under the scheme it must submit a completed application form (See Appendix 1 of CHY2 information leaflet) to Charities Section, Revenue Commissioners, Government Offices, Nenagh, Co. Tipperary.
• Educational institutions or bodies in the State, including primary and second level schools / colleges and third level institutions, if they meet certain conditions (e.g. their programmes are approved by the Minister for Education and Science or the institution provides courses which are validated by the Higher Education Training and Awards Council).
• A body approved for Education in the Arts by the Minister for Finance in accordance with Schedule 26A Part 2
• The Scientific and Technological Education (Investment) Fund (STEIF)
• The company incorporated under the Companies Acts, 1963 to 1990, on 20 September 1990 as First Step Limited
• The Malting Research Committee of the Irish Malters Association
• The European Research Institute of Ireland
• The Equine Foundation
• The Dun Research Foundation
• The Institute of Ophthalmology
• The Mater College for Research and Postgraduate Education
• St Luke’s Institute of Cancer Research
• A body to which section 209 Taxes Consolidation Act 1997 applies i.e. a body for the promotion of the observance of the Universal Declaration of Human Rights or the implementation of the European Convention for the protection of Human Rights and Fundamental Freedoms or both
• The Foundation for Investing in Communities Limited or any of its 90% subsidiaries as may be approved for the purposes of this Scheme by the Minister for Finance.

(Note : All approved bodies, including charities and schools, have been circulated with a copy of information leaflet CHY 2 on this new scheme.)

What donations qualify for relief?

The minimum donation in any year that must be made to any one approved body is £200/£250 (£148/ £185 for the short tax year 6 April 2001 to 31 December 2001). There is no maximum qualifying donation. Donations made by instalments (e.g. Standing Order) will also qualify.

A donation must also satisfy the following conditions:

• It must be in the form of money
• It must not be repayable
• It must not confer any benefit on the donor or any person connected with the donor
• It must not be conditional on, or associated with, any arrangement involving the acquisition of property by the approved body.

Nature of the relief

The arrangements for allowing tax relief on donations will depend on whether the donor is a PAYE taxpayer or an individual on self-assessment or a company. In the case of donations from individuals, relief will be given at the donor’s marginal rate of income tax.

• For a PAYE taxpayer who makes a donation, the relief will be given on a “grossed-up” basis to the approved body rather than by way of a separate claim to tax relief by the donor. In other words, the donation will be treated as having been received by the approved body ‘net’ of income tax and the approved body will subsequently reclaim the tax from Revenue
• In the case of a donation made by an individual who pays tax on a self-assessment basis, the individual will claim the relief in his / her tax return for the year of assessment in which the donation is made and there is no grossing up arrangement for the approved body
• In the case of a donation made by a company, the donation will be treated as a deductible trading expense or as an expense of management in computing the total profits of the company. The company can make a claim with its tax return for the accounting period in which the donation was made and again, there is no grossing up arrangement for the approved body.

Examples:

PAYE individual

• Individual taxed at the standard rate of tax i.e. 20%
  Individual donates £500/ £635
  Value of donation to the approved body = £625/£794

  (i.e. £500/ £635 × 100)

  80

  Tax associated with the donation
  (£625/£794 - £500/ £635) = £125/£159
  The approved body will therefore be able to claim a repayment of £125/ £159 from Revenue at the end of the tax year.
• Individual taxed at the higher rate of tax i.e. 42%
  Individual donates £500/ £635
  Value of donation to the approved body =

  £862/£1095 (i.e. £500/£635 × 100)

  58

  Tax associated with the donation
  (£862/£1095 - £500/£635) = £362/£460

The approved body will therefore be able to claim a repayment of £362/£460 from Revenue at the end of the tax year.

Note: Where sufficient tax has not been paid to cover the donation made, the refund of tax will be limited to the amount of tax actually paid by the donor.

The individual PAYE donor must complete an “Appropriate Certificate” (see copy at the end of this article) and forward it to the approved body to allow it to claim a repayment of the grossed up amount of tax associated with the donation. Additional copies of the “Appropriate Certificate” may be obtained from:

Charities Section,
Government Offices,
Nenagh,
Co.Tipperary

Tel: 067 44310

or from any Local Tax Office or from our website at www.revenue.ie - see “Publications”.

At the end of the tax year in which the donation was made, approved bodies may claim a repayment of the tax associated with PAYE donations received by them through forwarding the details contained in the Appropriate Certificates to Revenue in an agreed electronic format together with a declaration that the details are correct and complete. Where the approved body does not have the facilities to forward the details electronically, they may be given in writing in a format approved by Revenue. All repayment claims should be sent to:

Inspector of Taxes,
Claims Section,
9/15 Upper O’Connell Street,
Dublin 1.

Self-assessed individual

• Individual taxed at the standard rate i.e. 20%
  Individual donates £500/£635 and receives tax relief @ 20% (£100/£127). Cost to the individual is £400/£508 and receipt by the approved body is £500/£635 - there is no grossing up arrangement and therefore no repayment claim by the approved body arises.
• Individual taxed at the higher rate i.e. 42%
  Individual donates £500/£635 and receives tax relief @ 42% (£210/£267). Cost to the individual is £290/£368 and receipt by the approved body is £500/£635 - there is no grossing up arrangement and therefore no repayment claim by the approved body arises.

Corporate donations

Company X donates £500/£635 to an approved body. Assuming a corporation tax rate of 20%, relief to the company is £100/£127 i.e. £500/£635 @ 20%. While the approved body has the benefit of £500/£635 the cost to the company of making the donation is only £400/£508 (£500/£635 - £100/£127). The company will simply claim a deduction for the donation in its tax return, there is no grossing up arrangement and therefore no repayment claim by the approved body arises.

What reliefs have been terminated?

The following standalone relief provisions in the Taxes Consolidation Act 1997 have been repealed and are subsumed under this new scheme of donations :

• Section 88 - Deduction for gifts to Enterprise Trust Ltd.
• Section 484 - Relief for gifts for education in the arts
• Section 485 - Relief for gifts to third-level institutions
• Section 485A - Relief for gifts made to designated schools
• Section 485B - Relief for gifts to the Scientific and Technological Education (Investment) Fund
• Section 486 - Corporation Tax : relief for gifts to First Step
• Section 486A - Corporate donations to eligible charities
• Section 767 - Payment to universities and other approved bodies for research in, or teaching of, approved subjects
• Section 792 (subparagraphs (ii) and (iii) of subsection (1)(b), and subsection (3) - covenants for the conduct of research, teaching the natural sciences and promotion of human rights
• Section 848 - Designated Third World Charities: repayment of tax in respect of donations

What is the position when a donor pays tax through both PAYE and self assessment?

Where a person is within self assessment (say self employed) and also has income that is within PAYE, that person is a chargeable person (as defined in section 950 TCA 1997) and therefore is entitled to relief for donations at the marginal rate of tax.

What is the position on existing covenanting schemes in place?

Tax relief for payments made under deeds of covenant for the benefit of either the conduct of research or the teaching of natural science subjects or the promotion of human rights has been abolished from 6 April 2001. As such deeds of covenant are no longer effective for tax purposes there is now no requirement to withhold tax on such payments. Furthermore, such payments are no longer an allowable charge on the income of the covenantor (payer).

Whether payments continue to be made under the deeds of covenant in question is a matter for decision by the parties to the deed, i.e. the payer and the beneficiary . Where payments continue to be so made on or after 6 April 2001, Revenue are prepared to treat the covenanted amounts as a “relevant donation” for the purposes of Section 45 Finance Act 2001 provided that:

• the qualifying conditions of that Section are met including the requirement relating to the minimum donation applicable in any year of assessment / accounting period, and
• “Appropriate Certificates” (see copy at the end of this article) are received in the case of PAYE covenantors.

What could constitute a "benefit to the donor or to any person connected with the donor" and such as may act to render a donation ineligible for relief question

The general rule is that donations should be at arms-length. Nominal or incidental type benefits, such as the right to receive a newsletter on the approved body’s activities, would not act to render the donation ineffective for tax relief benefit. However, benefits such as preferential rights of entry to prestigious events, particularly where entry may normally be subject to a cover charge, would constitute a benefit in consequence of having made the donation.

Certain institutes or professional membership representative associations may be eligible bodies for the purposes of the new scheme having regard to their educational or research activities, for instance. However, annual membership subscriptions to such bodies would generally carry with them a benefit to members.

Any approved body which feels that an issue may arise for them under this heading may wish to clarify the position with Revenue at the address below.

Further Information:

You can obtain further information from:

Office of the Revenue Commissioners,
Charities Section,
Government Offices,
Nenagh,
Co. Tipperary.

or from your local Tax Office.