Reforming Charity Taxation

Tax reliefs for charities are inherently complicated and costly for the government, with approximately £5bn going out to charities or individuals either directly through gift aid or on various reliefs (such as business rates relief). The Charity Tax Commission was established around two years ago by the National Council for Voluntary Organisations to consider the tax system and make some recommendations about the best way for the system to support the sector.

As a result of this, the Charity Tax Commission issued a report in July entitled “Reforming charity taxation”, making a number of recommendations:

• The higher-rate tax relief that can be claimed by higher rate and additional rate tax payers should be redirected to the charities, with an opt-out from the donors if they specifically request it.

• Consideration should be paid to creating a universal gift aid declaration database which covers all subsequent gifts to charities.

• Consider extending business rates relief to wholly-owned charity trading subsidiaries.

• Consider making it mandatory for employers to offer a Payroll Giving Scheme.

• Review VAT rules for shared facilities.

• Require public bodies to provide the VAT status of funding.

Some of the points raised make a lot of sense, and some are more complex. It is hard to see them all being implemented, however the last point with regards to clarity on VAT treatment of funding provides a really interesting view on the struggles currently facing the charity sector. The CTC is led by a former chairman of what was then the Inland Revenue and representatives of HMRC and HM Treasury attended the meetings, and therefore whilst there is some hope that the report will carry weight with Government, we await to see what, if any, changes will arise.

Please contact Michelle Ferris if you would like to discuss anything mentioned above in further detail.