Charity Tax Exemptions are more than just a ‘nice to have’
I won’t deny it: taxation is hard to get excited about. However, at an estimated worth of £3.77bn a year for the charity sector, the benefits that tax reliefs bring are not.
With NCVO’s Charity Tax Commission conducting the first comprehensive review of charity taxation and reliefs in 20 years, the IoF sees this as a real opportunity to put the beneficiaries of charities first by focusing the discussions and debates on tax policy on the public benefit that charities deliver.
Fundamentally, the entire purpose of charities is to do good for public benefit. It makes sense that the more resources and assets charities have to work with, the more they are able to further these charitable purposes. Approaches to charity taxation should, across the board, enable the charity sector to maximise the public benefit it delivers as well as help Government achieve its objectives in reaching vulnerable individuals and communities and meeting need in our society. Charity tax exemptions should not be viewed as a ‘nice to have’, an ‘exemption’, or a ‘loophole’ – but instead as a fundamental building block for furthering public benefit.
A tax system that embeds this approach would not only reduce the amount that charities pay in tax, but also maximise the value of incentives or mechanisms for tax-effective giving. Introducing ‘nudge’ policies could make a huge difference; for example, removing VAT charges from the cost of writing a will where a legacy gift is included would provide solicitors an obvious opportunity to raise the question of leaving a gift to a charity in their will. An easy fix that could potentially result in millions more for charities in future legacy gifts.
Similarly, in the area of Gift Aid, changes to Higher Rate Relief could enable higher rate tax payers to more easily and simply ensure that charities can get the maximum value on donations. The current process of claiming tax back then donating that to the charity can take months to go through. Introducing a presumption that a higher rate taxpayer wants all their tax to go to charity, while still allowing them to claim the tax back themselves if they would like, would maximise donations and make it simple for individuals to give where they want.
Likewise, a straightforward action such as removing the unnecessary barrier that an organisation must be registered with HMRC and have made Gift Aid claims in the past before they can engage with the Gift Aid Small Donations Scheme would open it up to more organisations.
But it’s not just about the money; the benefits of charity taxation go far beyond this and should be not be overlooked:
- Business Rate relief enables charities to have a physical presence to raise awareness of their cause, recruit volunteers and create fundraising opportunities
- VAT exemptions reduce the cost of fundraising, enabling organisations to put on more activity and events which engage and encourage volunteering and participation
- Gift Aid, Payroll Giving, and IHT relief show government support for fundraising and promotion of giving, normalising donations and influencing behaviour
- Gift Aid and IHT relief also provide charities an extra opportunity to have a conversation with a supporter
Positive changes to charity tax could help position charities better to fulfil their long term strategic role in society, as well as acting as an important ‘signifier’ of how much government endorses the role and worth of charities in society. It boils down to this: the charity sector not only furthers the public good, but is a public good in itself. A thriving charitable sector has inherent worth to a society, and taxation policy can and should recognise this.
Lizzie Ellis, Policy and Information Officer at the IoF