Charity finance policy Environmental, social, governance (ESG) Gift Aid Tax and VAT

Budget 2015 – Missed opportunities and targeted giveaways

The Chancellor has sat down, the media are pouring over the budget documents looking for stories to come out of the figures, but what has been the impact of the Budget for charities?

A slight easing of austerity

Looking at the overall picture, it seems clear that the impact of austerity is not going be significantly reduced at the start of the next Parliament, but will be a lot lighter towards the end. Ignoring the effect of inflation, this Budget has seen an easing of the cuts. In 2016-17, the Budget implies that the amount available to spend for departments will be around £3bn higher than he said it would be in December. By the end of the Parliament in 2019-20, departments will have £29.6bn more to spend than he predicted a few months ago. This will ease some of the pressure on departments, and it won’t mean that departments can avoid all the cuts or tough choices over the next few years. The better than expected news on the deficit means that this Budget didn’t see any additional cuts or higher targets for savings proposed that could have negatively impacted the sector.

Charitable tax reliefs could still come under pressure

The Chancellor has maintained the £5bn tax avoidance target for HMRC and while this means that the taxman will not have to raise more from avoiders, it is still a stiff target to hit over the next five years. This is on top of the over £7bn that has already been generated this Parliament. Charities will need to watch carefully that the £1.9bn of anti-avoidance measures that he didn’t spell out in this budget, do not involve squeezing charitable reliefs. The Chancellor also said that he wanted ‘far reaching reform’ of business rates. Business rate relief is worth over £1.5bn to the sector each year and vital for many charities to make delivering services economical.

While charity rate relief is not directly in line for change, if there is ‘far reaching reform’ this is likely to impact on charities. CFG, NCVO, Institute of Fundraising and Charity Retail Association are working together on this to ensure that charitable rate relief is robustly defended. Changes to deeds of variation announced by the Chancellor for serial tax avoiders could also have potential impacts of the sector’s legacy income unless there are clear exemptions for charitable donations built into it. CFG will be working with others to make sure that these concerns are taken on board.

Targeted giveaways

Air ambulances, blood bikes, military charities all bathed in the beneficent sun of Mr Osborne this afternoon with LIBOR fines and VAT refunds for these parts of the charity sector. The Chancellor also announced the creation of Charity Authorised Investment Fund structure which will bring charity investment vehicles under regulation by the FCA but will also see a VAT exemption for investment management costs, saving the sector an estimated £13m a year. The biggest announcement for the sector was the increase in Gift Aid Small Donations Scheme (GASDS) donation limit from £5,000 to £8,000.

This will mean that charities can receive £750 more in top up payments from government then they could previously. The government believes that this will be worth an additional £15m for the sector. Alongside this, it is great to see that the Office of Civil Society will be funding subsidised training for small charities on fundraising, which is crucial given the help that they need to adapt to the changing funding environment. This follows on from a recommendation in CFG’s budget submission, which was supported by NCVO, Institute of Fundraising, NAVCA, Association of Charitable Foundations and Small Charities Coalition. Another targeted giveaway that will help charities was the confirmation at the retail business rate relief, which helps charity shops, would be extended to 2015-16 – although this was announced in the Autumn Statement.

Missed opportunities

Alongside these targeted giveaways to the sector, however, we some big missed opportunities. Most importantly, although the cap for the GASDS was raised, the fundamental problems with the scheme have not been addressed. We called for the review of the scheme to be brought forward from 2016 in our budget submission, and we have outlined detail proposals on how to improve the scheme so that more small charities can access it. Without a full reform of GASDS, the increase in the donation cap is unlikely to be anything more than theoretical. The extension of the VAT rebate scheme to blood bikes shows once again that the government recognises the problem of irrecoverable VAT and that it can take action to fix it. But unfortunately, this recognition has not led to discussions on how we can resolve irrecoverable VAT for the whole sector. This costs charities up to £1.5bn a year, funding which should be spent on achieving charitable objectives and delivering social change. The Chancellor also did not take the opportunity to confirm the £40m Local Sustainability Fund which is due to start from April, but has not been officially confirmed or launched. We will wait and see what happens with this long awaited fund.

And finally, there had to be something on social investment…

Last year, the government launched the Social Investment Tax Relief and said it would consult on an indirect scheme for the relief to help attract more investors to use it. In the Budget, the government has confirmed that Social Venture Capital Trusts (Social VCTs) will be allowed and investors will get 30% income tax relief on their investments in them, as well as paying no tax on dividends or capital gains tax on disposal of shares. This could be game changer for the relief, which is still in its early days, if it attracts significant numbers of mainstream investors. Venture capital funds are a massive part of the business investment landscape, could Social VCTs become the same for the sector?

What next?

With the election coming quickly upon us, it was never likely that charities would be the centre piece of today’s announcements or that there would be significant reforms. But as highlighted above, the impact of today’s announcements could take many months to feed through. The changes to business rates, the opening of the door on irrecoverable VAT and reform to Gift Aid Small Donations Scheme will now need to be carried over to the next Parliament and Charity Finance Group will be working across the sector to make sure we get the best possible outcome for charities. CFG has producing a budget briefing for charities on the impact of the budget which you can read here.

This post was last reviewed on 18 October 2018 at 16:37
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