Trust bonus set to be reformed

By NEIL RIDDELL

SHETLAND Charitable Trust looks set to be forced to radically alter its £1 million Christmas bonus scheme for pensioners in the isles, it emerged this week.

Under the trust’s budget for 2008/9, a payment of £321 is due to be made to all pensioner and dis­abled person households in Shetland which choose to apply for the bonus, at a total estimated cost of £1,125,500.

The trust currently pays £60,000 in tax on the scheme but, although no final decision has been taken, the Inland Revenue is likely to force it to pay a substantial amount of additional tax on the bonuses paid out over the previous two financial years, which The Shetland Times understands is likely to be a six-figure sum.

For the past two decades, tax on the bonus has been levied at a relatively low level even though the tax man did not view it as a strictly charitable scheme, meaning all residents – including those on fat pensions – have been eligible to claim the payment.

But earlier this year the Inland Revenue began querying the status of the payments after jurisdiction over UK charities was moved to a new tax office, while there have also been some regulatory changes. Essentially, the tax man does not see why payments issued indiscrimin­ately to people of pensionable age in Shetland, regardless of the size of their income, should be viewed as charitable.

Assuming trustees wish to continue running the scheme this winter, the trust is unlikely to have time to significantly modify it and will have to carry on and incur more tax in the current financial year, before looking at an alternative way of running the scheme in time for the 2009 payments.

Trustees will discuss possible ways forward at a meeting on 17th September and a press statement was released this week to inform pensioners, who may have been expecting a letter regarding the bonus in the first half of this month, that there would be a delay.

The statement read: “Letters will be sent directly to the trust’s mailing list of intended recipients as soon as possible afterwards, and a further press release will follow.”

Trust chairman Bill Manson said he did not think a fortnight’s delay to the scheme would make any sig­ni­ficant difference to its admini­stration in time for Christmas this year, but that trustees would have to make a decision on whether to press on with the scheme in its existing form to allow the organisation to process this year’s payments.

“I’m one who has believed for some time that we should review this, because we have never accepted that it wasn’t wholly charitable, but on the other hand the tax inspector many, many years ago ruled that we had to pay some tax on it,” Mr Manson said.

“Because it was a relatively modest sum that was being asked for, we haven’t challenged that, but I suppose one could infer that by not challenging it over a period of nearly 20 years we are accepting that the outcome could have been worse.”

Because of the timescale and the level of administration needed to devise an alternative scheme, trust­ees will be faced with a straight choice of continuing with the exist­ing scheme until next year or not paying out any Christmas bonus at all.

But a full-scale review of the scheme before it is time to start issuing payments in 2009 seems inevitable. Means testing has been resisted by the trust in recent years because of the administrative night­mare and additional financial costs that tracking down and assessing the roughly 3,500 potential recipients would entail.

While a full means test remains impractical, it is likely that finding some way of targeting the bonus towards the poorest pensioner and disabled person households will have to be found in order to avoid further hefty tax bills.

Mr Manson said: “The unfortun­ate thing is that if you do not pay it to all of these people, wherever you draw the line there are marginal cases on either side of the line.

“But I don’t rule out the thought that if we cannot pay out to those who don’t need it, we could actually target it and pay it to those who really do need it. It’s not necessarily a money-saving exercise.”

Poorer pensioners are likely to be the hardest hit by savage increases in gas and electricity bills and the spiralling price of fuel and food during the economic downturn and it seems inconceivable that trustees will decide to abandon the bonus scheme against that backdrop.

Mr Manson said correspondence with the Inland Revenue is still ongoing and that he hoped there would be more clarity by the time of the meeting.

“Foremost in my mind isn’t that it probably needs reviewing and sorting out,” he said. “But – however we speculate about those who don’t need the payment – there are a lot of people who derive benefit from and need the payment. Right at the front of trustees’ minds will be the fact that those people need to be helped.”

The bonus has been provided by the trust since 1975 and the sum paid out was increased to £250 in 1999, since when it has been linked to inflation.

Since earlier this year the trust has been seeking the advice of char­ity regulator OSCR as to whether the payments ought to be viewed as charitable, but the regulator has not gone beyond making fairly general­ised statements and has been reluctant to comment on individual schemes.