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

#volsecbudget – What should charities look out for?

Tomorrow will mark the last Budget of this Parliament, and already a great deal has been trailed in the media from inheritance tax cuts to raising the personal allowance. 

. Charity Finance Group coordinated a letter with other sector bodies at the start of the month to ask the Chancellor to tackle a number of issues such as Gift Aid, Gift Aid Small Donations Scheme, VAT and capacity building for the sector. But what should charities be looking out for tomorrow when the Mr Osborne stands up at 12.30 after PMQs? Here are a few things that we think may interest the sector.

You can follow CFG’s analysis of the Budget via the hashtag #volsecbudget as well as following our twitter accounts, @caronlb @CFG_OBrien and @CFGtweets from 12pm tomorrow.

A reduction in cuts?

Mr Osborne came under significant pressure after announcing that the Coalition’s plans included a £23bn surplus – equal to 1% of national income – in 2019/20 in last December’s Autumn Statement. The Conservatives have promised to balance the budget (as have the Liberal Democrats excluding capital spending e.g. roads, bridges, buildings etc.) so it would be very surprising if Mr Osborne did not reduce that planned surplus. However, what will he do with this ‘wiggle room’? The most likely outcome, judging by the media reports, is that he’ll use it to cut taxes (targets include raising the personal allowance even further or raising the 40p tax threshold). But he may also choose to reduce the level of cuts required by non-protected departments such as local government, transport and defence.

At present, austerity over the next five year is likely to be greater than that of the past five years if the current Coalition plans are followed through. Reducing the surplus in 2019/20 makes the cuts significant, but probably no deeper or faster than in this Parliament. Given the impact that cuts have had on the sector so far, any reduction in the level of spending cuts in the next Parliament is likely to help charities involved in delivering public services, particularly where provision is not statutorily mandated.

Tax avoidance

In each of the Budgets given by the Coalition there has been a significant focus on tax avoidance. In part, this is because it plays well with the media but also because it means that less ‘cuts’ are required by other parts of government. In the last Autumn Statement, the Chancellor announced a further £5bn would be generated through clamping down on tax avoidance. However this is easier said than done. But given the need to keep cutting the deficit and a desire to avoid unpopular spending cuts, it is likely that the Chancellor will try to raise even more through clamp downs on tax avoidance. Fact checking by Channel 4 found that the government had generated an additional £7.6bn through clamping down on tax avoidance so far this Parliament, but this has mostly been grabbing low hanging fruit. Significant additional revenue will require more legislative and regulatory change and an even tougher compliance regime.

Charities receive a number of tax reliefs which enable them to do their work and spend as much money as possible on their charitable objectives. However, if the Chancellor announces another increase in the amount to be raised through tax avoidance, this is likely to be put even more pressure on charitable tax reliefs. Whilst this is unlikely to lead to the loss of reliefs, concerns around ‘the tax gap’ will make reforming Gift Aid and VAT harder for the sector – despite the need for the sector to generate additional income to meet increased demand. Moreover, as we found out last year with the attempts by HMRC to ‘define’ charities for tax purposes, the pressure to reduce tax avoidance can impact charities in a number of unforeseen ways.

Business rates

Yesterday the government revealed the long awaited consultation on the future of business rate relief. The consultation doesn’t close until the 12th June but a number of bodies have called for a significant overhaul of the business rates regime, and some in local government would like to see more business rate income kept by local authorities. The government has said that it wants to keep the charitable rate relief, and CFG will be responding to this review to ensure that this important relief remains (it is worth more to the sector than Gift Aid). However, watch out for the Chancellor’s words on business rates and whether he gives any indication about a desire for significant reform. Although charitable rate reliefs are not the target, if business rates are significantly changed this could have a knock-on impact on this valuable relief.

Gift Aid

Last Autumn Statement we got a few lines about allowing intermediaries a greater role in Gift Aid on digital donations (text or online) and a review into donor benefit rules (which are notoriously complex). However, it seems that every Budget contains some tinkering with the Gift Aid system. A new model Gift Aid Declaration is due to come out in the summer, so watch (or rather read) the budget carefully to see if there are any hidden surprises.


Last Autumn Statement the Chancellor announced VAT rebates for hospices and emergency service charities, which was very welcome. It also highlighted the fact that the government can act to reduce the irrecoverable VAT burden if it chooses to do so. CFG has called for the government to begin a discussion on how to introduce a sector-wide rebate scheme, but it is more likely that the government will choose to target certain parts of the sector that are seen as more appealing to voters. If, however, the Chancellor does announce another set of rebates for specific parts of the sector, it would mark an important precedent that could provide momentum for wider scale reform of the VAT system for charities. There are also rumours of a consultation on VAT recovery by charities in receipt of subsidies and grants with VAT recovery limited to part of their costs for charities that receive grants or subsidies or donations.

Bank Fines

Fines from banks keep coming, and last Autumn Statement the government promises to commit £50m in additional funding to support military charities and other good causes. Using bank fines to support charities is a popular measurement, so look out for any giveaways like this, particularly in a pre-election season.

National insurance

Every Budget this Parliament it has been rumoured that the Chancellor is going to undertake sweeping reform of the National Insurance system, potentially merging National Insurance and Income Tax together to create a single ‘payroll tax’. So far, it hasn’t come. But rumours of this change have been floated in the media again and radical tax simplification would be a big fillip for backbench Conservatives as well as pleasing to the business community. It’s a long shot, but could be worth watching out. There are likely to be other announcements from pensions to beer duty, and the upcoming General Election creates an additional level of uncertainty. We’ll be producing our usual Budget Briefing tomorrow and sending it out to members by close of play so that charities are informed of the changes most likely to impact on them. If you have any questions or views, please leave a comment below.

This post was last reviewed on 18 October 2018 at 16:35
« Back to all blog posts