The Charities Act, Tax and Research

1
The Charities Act, Tax and Research

• Dr Phil Clare
• Associate Director, Research Services
• University of Oxford

2
Caveats

• All this is currently under discussion
• Anything that might appear to be an official
  statement or firm conclusion isnt
• Unico, ARMA, AURIL, BUFDG all involved in talks
  with HEFCE, HMRC, CC and Government departments
  to resolve this

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Charity Law

• Universities are charities
• Some activities are charitable, some are not
• Non-charitable activities can be undertaken by
  subsidiary companies
• Research is not necessarily charitable

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Tax

• Universities have to separate primary purpose
  (charitable) and non-primary purpose
  (non-charitable) activities on their tax returns
• If the correct attribution is made, universities
  should pay no tax
• If incorrect attributions are made, penalties may
  apply

5
HMRC

• Do not have a tax take agenda for charities
• Do have an obligation to ensure that charities
  comply
• Follow the Charity Commisions lead on what
  constitutes charitable activity

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Clarity

• is required with respect to
• Our obligations as charities who conduct research
• How we will be expected to demonstrate our
  compliance with tax regulations

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When is Research Charitable?

• Subject matter is useful
• Dissemination is contemplated
• Research is conducted for the benefit of the
  public, or a sufficiently important section of
  the public
• Dibble Letter May 2004
• Private Benefit is legitimately incidental

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Public Benefit

• Dissemination is generally adequate
• Practical application may be adequate if it
  furthers the objects of the charity
• Not necessarily the same for all universities
• Contract research without dissemination is not
  usually charitable

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So far so familiar

• So whats the problem?

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Incidental Private Benefit

• What exactly does this mean?
• Only that which is not intended?
• Only that which is necessary and no more?
• What would that mean for KTPs?
• It isnt primary purpose just because it is
  government policy

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Incidental Private Benefit

• Beyond Dibble
• Reasonable and Necessary
• Taking into account relevant circumstances
• Of which there are a lot

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Practical Consequences

• How do we negotiate research contracts?
• Are we (all) aware of our obligations as
  delegates of the trustees of the charity?
• Do we apply them consistently?
• Can we demonstrate that?
• What benchmark will HMRC use?

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The Taxman Cometh

• Analysis of each and every contract?
• Or process based assessment?

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Guidance will be issued on

• Clarification of our obligations as charities
• How HMRC intend to assure themselves of our
  compliance

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What should we do?

• When the guidelines are issued, make sure we are
  aware of what constitutes charitable research
  when we are negotiating and classifying projects
• Talk to the Finance Office!
• Make sure correct financial and legal structures
  are on place
• Review processes and documentation for contract
  negotiation

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Training for contract negotiation

• Understand how charity law principles underpin
  the positions we negotiate for
• Make sure negotiators can explain why we behave
  the way we do
• Work with colleagues in industry to develop
  understanding

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Training Opportunities

• Praxis/ARMA Research Contracts Course 3rd-5th
  November
• AURIL training and Conferences
• BUFDG conferences
• Unico Conference 19th-21st November, Birmingham
  and next June, Brighton