July has seen the long awaited publication of the Charity Tax Commission report ‘Reforming Charity Taxation: towards a stronger civil society’. The idea of such an independent commission has been discussed in the sector for some time, and at a time of political and economic tumult it is an exciting time to hold such a commission on such an important issue for charities.
The commission itself brought together a number of thought-leaders on both tax and the charity sector, with commissioners including CFG’s very own special advisor Pesh Framjee, with it being chaired by former chair of Inland Revenue Sir Nicholas Montague.
It is a significant undertaking to bring together the commissioners, take on board the many responses they would have received and organise roundtables throughout the country and to find consensus, NCVO deserves significant credit for delivering on such an undertaking.
The report also provides a helpful overview of the purpose of charitable tax reliefs and a summary of the main charity tax reliefs that charities and donors receive, although the broad principle that money given for public benefit should not be subject to tax could have been more prominent within the report.
One contentious point which undergirded the commission was the demand of fiscal neutrality from the recommendations. While it is political understandable why this requirement would be in place and would help to reduce the number of quixotic suggestions that will be put forward, there is something of a tension between presenting practical proposals that can be introduced relatively quickly and ambitious and creative ideas being given . But as Sir Nicholas observed at the launch of the report, one would think that the treasury would have little if any reason to oppose proposals that won’t cost them any money.
The recommendations are split into parts, on the one hand short-term reforms which could be introduced relatively quickly, and a second set of recommendations which look at the longer term challenges facing the sector, where it is deemed immediate solutions cannot be offered as there is either insufficient data or a lack of research on the implications of these recommendations. There are many interesting proposals contained in the report, but a number which are of particularly note.
Of the short-term recommendations, there are several that the sector should fully get behind, re-directing higher rate relief to charities (on-top of the basic-rate they already receive) would be a real positive for charities and something that CFG, amongst others have called for before, as is the proposal for a mandatory payroll giving scheme. The Universal Gift Aid Declaration Database would also greatly simplify the administrative process of claiming Gift Aid, and help to decrease the amount of unclaimed Gift Aid. As with all these proposals the devil would be in the detail, but there is no lack of those who can help to determine the feasibility of these proposals.
We would have liked to see the proposal to consult on extending rates relief to wholly-owned charity trading subsidiary companies go further and remove the need for trading subsidiaries entirely, as outlined in the paper written by Crowe and jointly supported by ourselves and ACEVO, but it is still a positive step. We would have liked to see the removing of the matching requirement for the Gift Aid Small Donations Scheme (GASDS) be a little bolder, rather than call for government explore this option, just to get on and do it.
We would also support government doing more to promote awareness and understanding of gift aid, and have launched Gift Aid Awareness day (3 October) to help with this, alongside the suite of other training and events CFG host to ensure charities are take advantage of this relief.
Of the ambitions for the future, a comprehensive review of VAT for charities is long overdue, with a feeling amongst many in the sector that the current system is not fit for purpose, a systematic look at the problems contained would be most welcome, and might potentially offer the opportunity to either reduce or remove entirely irrecoverable VAT from the sector.
While the recommendations in the report are well researched and this is a considered contribution, we would not want to see government pushback on any further, more ambitious asks in the future on the basis of this review being undertaken. Of course this is not a criticism of the report itself, but rather the way it might be used by political decision makers to deflect other suggestions.
While I have raised a few caveats, overall the report presents a set of provocations that charities should broadly get behind. Whether or not they become a reality will greatly depend on what happens next and how we as charities and sector bodies get the government to listen and enact the best of these proposals.
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