'Let me tell you how it will be': A timely review for charity tax
Let’s get the big one out of the way first, no one is going to tax your feet; as the Tax Commission publishes 'Reforming Charity Taxation – towards a stronger civil society' Dan Fluskey, Head of Policy & External Affairs, looks at what the report shows.
Looking through Reforming Charity Taxation – towards a stronger civil society by the Tax Commission brought together by NCVO that was published today you won’t find any of The Beatles lyrics referenced in there. Which is probably a good thing, because they are concentrating on something much more important – a proper, considered, thoughtful and in-depth review of the tax reliefs for charities. And, at £5bn a year, it’s a hugely significant area to review.
Taking an approach that goes from the conceptual (what is the purpose of charity tax reliefs) through to the practical (looking specifically at business rates, Gift Aid etc), this is the first proper review in some time. We are in changing times for the charity sector with an uncertain economic environment, rising costs, and fundamental questions and debates continuing around the role and purpose of civil society (for example, see Civil Society Futures) and so looking at how the charity tax system can work best is timely and needed.
The tax system is a really important piece of the picture in fundraising: it can maximise the value of donations given, provide an incentive for people to give, and is an important sign of public recognition from central government that donating to charities is a positive social action. We are glad to have been able to input into the project, through the call for evidence and with our CEO, Peter Lewis, part of the Reference group, and are pleased to see some of our ideas picked up and endorsed in the recommendations. We believe that there are changes that should be brought in that will inspire more giving and make sure that we get the most value out of every donation.
- Getting the most out of Gift Aid – we believe that most people want to see charities benefit as much as possible from the donations they give. While Gift Aid is set to give the 25% of basic tax (£2.50 for every £10 donated), the situation for those who pay additional and higher rate tax reliefs is more complicated. The only way they can get the fuller value of their tax relief to charity is to claim it back from HMRC and then donate it to the charity. Why should it be that complicated? IoF made a clear ask - let’s make it easier for people to give the fuller value of tax relief to the charities they support by making the full tax paid flow through to the charity as the default option. In some cases, primarily for major donors, the tax rebate may well be part of their decision to give, so we didn’t propose taking this away as an option, so let them continue to claim where they want to, but put more of an emphasis in charities getting full value. The Tax Commission estimates that could bring an extra £250m a year.
- Taking a fresh view at Corporate Gift Aid – we remain unconvinced that Corporate Gift Aid is currently set up in the most effective way to deliver as well as it could for charities. It’s time for a fresh look, and we’re glad that the Tax Commission are recommending Government review it to examine how to maximise the amount of money charities receive through.
- Exempt VAT from Wills which include a charitable gift. This could be a big one if taken forward. I’ve been working closely with Rob Cope, Director of Remember A Charity, who has been developing this idea over the last couple of years and it’s great to see the proposal recognised as a recommendation for government. An extra £72million, ever year, could be brought into the sector through legacy gifts at a cost of around £750,000. As Rob says: “The key to growing legacy giving is driving consideration and conversation. Fiscal incentives such as our VAT proposal have huge potential to be a powerful lever for change, helping charities and advisors to become louder about legacies.” It’s a no-brainer for me, and hope it will be taken forward.
There’s lots more in the Tax Commission report than these three recommendations and many ideas and recommendations to think through and discuss, including the mandatory offer of Payroll Giving by employers and the potential use of a Universal Gift Aid Database. We’re looking forward to being part of these conversations and hope that this report is looked back on as a key milestone that brought about change. Well done to NCVO for commissioning the project and providing the capacity (particularly in the human form of Paul Winyard) to bring it from an idea into reality.