Large charities have been warned to prepare for new employment rules or risk hefty fines.

The words come from the Charity Tax Group (CTG), a specialist accounting organisation for the not-for-profit sector.

The warning relates to the introduction of new off-payroll working rules in the private sector. Under the legislation, coming into effect April 2020, it will become the responsibility of the largest employers to determine whether a worker is an employee of the organisation or not.

The move is designed to prevent employers and contractors from paying less tax by using ‘disguised employment schemes’.

However, the CTG expects that the rules could increase the costs of compliance for charities who exceed the annual revenue threshold – currently a turnover of £10.2 million or more, a balance sheet total of more than £5.1 million or having over 50 employees.

Commenting on the changes, Richard Bray, vice chairman at the CTG, said: “It is important to appreciate that these changes are not about tax compliance alone but could result in significant increases in a charity’s cost base.”

He added: “A further complication is that the personal service company is likely to continue issuing invoices as it has before. These will generally include VAT. So, changes will be required to accounts payable systems which will presumably pay the VAT whilst the net value of the invoice will, in effect, be processed by your payroll system. How will this work?

“My plea is simply that we all make the most of the time given to us to plan for the impact of off-payroll working.”

As a result of recent representations, HM Revenue & Customs (HMRC) has now agreed to not include donations and grant income as part of the income test, meaning fewer charities will fall into the large employer bracket.

According to the CTG, the definition of turnover for the rules will be the same as the definition used in the Companies Act 2006.

For help and advice preparing for new off-payroll working rules, please get in touch with our expert team.

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