Governance, legal and compliance Tax and VAT

Targeted giveaways risk creating a hierarchy of charities

Successive budgets over the last and current parliament have introduced targeted giveaways to charities through both Libor fines and VAT rebates. These funds have gone to selected organisations including military charities, rescue services, and youth organisations. Whilst this funding is very much welcome to those charities that receive it and their beneficiaries, such giveaways are becoming a worrying trend and risk categorising the sector into worthy and less worthy organisations, as deemed by the government of the day.

Charity is personal...

Simply put: a person’s decision whether or not to donate to charity and which cause to support will come down to whether the organisation is focused on an issue that matters to them. Such decisions can be made fleetingly or after significant consideration and people are attentive to how causes they care about are faring and how others regard them. It is in this way that charitable donations are a personal act. Similarly, the decision to withdraw or to not support an organisation is personal. As my colleague, Andrew, wrote in response to Matt Ridley’s recent article in The Times, some people will disagree with the manner in which a charity carries out its charitable activities. This does not negate the work of that organisation, but it is a legitimate reason for a (potential) donor or supporter to disengage, or decide to work with others to influence the charity’s decision makers.

…whilst allocating public funds shouldn't be

This week, the Chancellor announced that Yorkshire Air Ambulance would receive £1 million from Libor fines. A particularly attention-grabbing headline reads: Chancellor George Osborne donates £1m to Yorkshire Air Ambulance after Geoffrey Boycott intervenes.

It is the use of the word “donate” that caught my attention, as well as the implication that the funding was given to the organisation by the Chancellor as an individual, on the back of an intervention from a beloved sports personality. Government spending and tax reliefs cannot be allocated on such a basis. This is not detracting from the work of the air ambulances, nor the significant positive impact that this funding will have on the beneficiaries of the charity.

So, what’s to be done?

If charities qua charities are to receive a government grant there should be a mechanism through which organisations have an equal opportunity to apply for available public funding. The sector is still in recession — current projections show that the sector will have a £4.6 billion funding gap by 2018 — and charities are experiencing a significant capacity crunch. The capacity-building that has been undertaken is rarely focused on the financial skills that will enable charities to get the most out of their resources. Funds such as the Local Sustainability Fund are welcome, but the short time-span for applying, and the limited funds available, means that it might not reach those who are most in need. Similarly, it has not been made clear why some charities have been granted additional privileges through VAT rebate over others. Tax reliefs are a significant way in which donations can be maximised and costs kept to a minimum. 

CFG, and other sector bodies, have previously called for all charities to receive VAT rebates. Irrecoverable VAT is estimated to cost charities £1.5 billion, money that could be better spent on delivering public benefit. The European Commission made explicit that it is within the UK government’s power to create a refund mechanism to tackle this very issue for charities. The government has shown that it is able to do this on a small scale, but we need to start a discussion on how to extend this relief to the sector as a whole so that all charities have the opportunity to focus a greater proportion of their income on delivering public benefit. A cursory look at the evidence, and the recent closure of high profile charities, should indicate to policy makers that directing funds to strengthen the sector’s capacity to deliver public benefit is a worthwhile goal.

This post was last reviewed on 27 February 2019 at 15:19
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