Charity finance policy

Early analysis of Budget 2016: a missed opportunity

Whilst charities will no doubt be breathing a sigh of relief - not least because the axe over mandatory business rate reliefs seem to have been taken away - the sector shouldn’t be complacent.

The government missed an opportunity to provide strategic support for the charity sector. Reflecting not only our major contribution to the British economy, but the vital role that charities play in society and indeed in the government’s move to reform public services.

Let's start with the good news A missed opportunity to provide strategic support Irrecoverable VAT does get a look in More government spending cuts Pensions & Salary Sacrifice Social Impact Bonds are not they way Technical Changes Keep Up-to-date

Let’s start with the good news

Mandatory Business Rate Reliefs have been protected! The government have heeded the representations made by CFG, NCVO and other sector band will not be making changes to the 80% mandatory rate relief for charities. Given that this relief is worth £1.5bn annually this is a significant win for the sector. Another bit of good news is that some charities which do not receive full business rate relief may benefit from the permanent doubling of Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a property with a rateable value of £12,000 and below will receive 100% relief. Businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief. Moreover, charities which do pay business rates will benefit from the switch in annual indexation of business rates from RPI to be consistent with the main measure of inflation, currently CPI which is traditionally lower. Now the next step will be to put forward the case for 100% mandatory rate relief.

A missed opportunity to provide strategic support

Small business owners will come away from today’s budget happy. Corporation tax will fall to 17% by April 2020. This will raise £9bn that will be ploughed back into small businesses. 630,000 small businesses will pay no business rates at all from next year. This will be a tax cut to the tune of £7bn for businesses. The Chancellor says that this will mean “a corner shop in Barnstable will pay no Business Rates”. The tax cuts that the chancellor announced today demonstrate a strategic approach to supporting private business. Ahead of the Budget, CFG and other leading voluntary sector bodies, outlined a series of proposals to the Chancellor. It is disappointing that Osborne did not use this budget to address some of the concerns that we set and announce a positive agenda for the charity sector. As always, it is a real boost to those charities that benefit from Osborne's trademark targeted giveaways through Libor Fines which, in this budget, are to the tune of £45 m. However, it is important that the government start to provide a transparent and objective process for charities to bid for this funding.

Irrecoverable VAT does get a look in...but only for free museums

In further targeted giveaways, the government will introduce a new tax relief for museums and galleries from 1 April 2017 to develop creative new exhibitions and display their collections across the country.This will be available for the costs of developing temporary or touring exhibitions and will follow a consultation on its design over summer 2016." Buried at the bottom of p66 of the HMT's Budget Document is the announcement that "the government will also broaden the eligibility criteria for the VAT refund scheme for museums and galleries, with new guidance to allow a wider range of free museums to access the support." This again is welcome news - It is estimated that irrecoverable VAT costs charities up to £1.5bn a year. The burden of irrecoverable VAT reduces the resources that charities can spend on their beneficiaries and creates an uneven playing field for charities that wish to engage in public service delivery. The tax system should be fair to charities, and resources should not be wasted due to complexities within the VAT system that was not designed with the unique position of charities in mind. This new announcement along with other rebate scheme for charities such as hospices, blood bikes and search and rescue charities, show that reform is possible. Moreover, the European Commission has made clear that this is within the power of the UK Government, so despite VAT being a European issue, Westminster has the power to act. CFG will continue to call for government to start discussions on having a sector-wide rebate scheme.

More government spending cuts

As predicted government spending will need to be cut by £3.5bn annually until the end of the Parliament. Details of where the cuts will fall are yet to come. Funding from government is one of the biggest sources of income for the charity sector – alongside incomes from individuals. Given that the charity sector is effectively still in recession, it is understandable that charities might be concerned that this will signify yet further falls in income. We also need to consider what impact this will have on people – if support is being removed for people and communities, charities may see an increase in demand on their services.

Pensions and salary sacrifice

The pensions changes that will be relevant to charities are few - our budget briefing will have more details on the potential impact to the changes to the LGPS. What is relevant for charities however, is that the government is:

"considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements."

If this is scrapped charities that have paid staff and use salary sacrifice will see an increase in their NIC bill.

Social Impact Bonds are not the way

£115m has been allocated to help confront homelessness. It is great to see that more money is being invested in homelessness - we know that many homeless charities have been campaigning for more support. However, £5m will be put into Social Impact Bonds. CFG has previously raised concerns about the government's commitment to this form of spending. Especially as they can take a long time to establish. Our head of policy Andrew O'Brien has previously stated that "we know that there can be difficulties in trying to reconcile the needs of long-term change when it comes to service users, with the needs of private finance – they want to make some return as soon as they can".

Technical changes

  • Climate change levy will be introduced in 2019/20 and will raise £425m in that year, and £35 in 2020/21. CFG has previously called for charities to be exempt from energy tax which we roughly estimate will cost the sector £12m. The government's response to their consultation on following the business energy efficiency tax landscape published today, recognises our concerns over the impact of new reporting requirements and have subsequently announced a consultation on de minimis arrangements to exempt small or low energy-consuming charities, with details explored in the consultation launched later this year. CFG will of course be engaging with our members and the wider charity sector and responding to this consultation.
  • Insurance Premium Tax has been increased by 0.5%. This is much lower than expected and good news for charities who cannot – in this period of precarious funding – to cut back on insurance. The £700m raised by this will got to flood defenses.
  • Changes to Lump Sum Death Benefits - For the keen eyed among you, you might have notice that the government will be "removing unnecessary legislation relating to charity lump sum death benefits". This is not going to effective charities as life insurnce and and pensions are already tax free.

CFG will keep you updated

CFG will continue to analyse the document. We will be circulating our detailed briefing to our members this evening. Our policy officer, Heather McLoughlin, will be attending the IFS post-budget briefing tomorrow (Thursday 17th March) and will provide a summary soon after. If you have any questions please do not hesitate to get in touch with the CFG Policy team –

This post was last reviewed on 24 September 2018 at 16:53
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