Institute of Fundraising: 2017 Budget Briefing Note

Institute of Fundraising: 2017 Budget Briefing Note

7 March 2017

Ahead of the 2017 Spring Budget the Institute of Fundraising, the professional membership body for UK fundraisers, is urging the government to take the following measures to support charity fundraising and giving in the years to come.

1) Enable smaller charities to generate more fundraised income to have an even bigger impact:

Too many charities report that they lack the skills needed to be able to effectively raise the funds they need. Surveys show that there is a particular skills shortage among smaller charities to undertake fundraising. Recent research from Local Giving highlighted that 78% expect demand for their services to rise, but only 18% felt resourced to cope with that increase. Fewer than one in four feel that they have the skills necessary to run a successful fundraising campaign. Worryingly, fewer than half felt that they would still exist in 5 years’ time [1]. More support is needed to make sure that the vital work of the charity sector, and in particular smaller charities, is supported and able to thrive in the long-term.

Fundraising is one of the most effective and sustainable ways charities can raise the money they need. Because many charities lack the skills and expertise needed to undertake fundraising activity, we would like to see a step change in the investment and support offered to the sector in fundraising skills, training and advice, and long-term support. Fundraising offers a fantastic return on investment. On average for every £1 invested on a fundraising activity, £4 is received by the charity. This return is even higher for smaller charities [2].

At the moment, the Office for Civil Society in the DCMS funds a very welcome programme of support for fundraising training for smaller charities worth £100,000 per year. This is a very important initiative which we believe there is considerable scope to increase. Releasing additional funding for this initiative could significantly increase the sustainability and impact of smaller charities and their ability to have a positive impact in the long-term.


2) Increase the number of people leaving legacies by removing VAT from the cost of writing a will, prompting more people to consider leaving a gift to charity:

Legacies are one of the most important ways the public choose to support the causes they care about, but also where we believe that people can be encouraged to give more in the future. Research from Remember a Charity shows that 35% of those aged 40+ are ‘happy to give a small amount to charity in their will’ once they have taken care of family and friends, and yet in practice only 6.3% of people do so [3]. By encouraging those who are writing a will to leave a gift to a charity, more people will be made aware of the opportunity to leave a legacy and the number of donations will rise.

We believe that changes could be introduced to the cost of writing a will that includes a charitable gift, and this would encourage legacy giving by (a) ensuring that all solicitors and will-writers mention the option of charitable giving due to the fact they would have to mention the different VAT treatment, (b) offering a small but simple financial incentive to those writing a will with a legacy gift in it, and (c) dispelling the myth that legacy giving is only for the wealthy. The first is particularly important as previous research shows that the legacy giving rate could double if solicitors were to ask clients simply if they would like to consider leaving a charitable gift [4].

Evidence shows that tax incentives are an effective way to encourage legacy giving, crucially because they prompt advisors to discuss the potential to leave a legacy to a charity. For example, the reduced Inheritance Tax (IHT) rate payable on estates where at least 10% of the estate is gifted to charity has led to increased legacy giving at the IHT threshold of £325,000. IHT allowances will be increasing from April 2017, and this will potentially have an adverse impact on charitable legacies as fewer people will be eligible for the 36% rate, and therefore may be less likely to be prompted to leave a charitable gift. This is therefore the right moment to look at new ways to ensure that advisors continue to raise the option of leaving a legacy gift to charity.

If legacy giving became an integral part of the discussion when writing a will, the number of people who leave a gift could double – potentially generating up to an additional £800 million a year for good causes [5].


3) Maximise the value of donations by reducing costs and tax burdens for charities:

Reduce the cost of irrecoverable VAT on fundraising activities and materials, and across the wider charitable sector

Irrecoverable VAT is the gap between the amount the sector receives in VAT, and what it pays out. Calculations show that this is equivalent to £9,204 for every charity in the UK - a significant cost [6]. The Government developed a rebate scheme for hospices, search and rescue charities and blood bikes in the Autumn Statement 2014 and Budget 2015. We believe this should be applied more widely across the charity sector. In particular this should apply to fundraising activities and materials.
The latest available estimate for the cost of irrecoverable VAT for charities as a whole is £1.5 billion per year [7]. Reducing this cost would stop the diversion of donations received through fundraising activity, and allow further investment in charitable activities, purposes and service provision.

A survey conducted by ComRes, commissioned by IoF and CFG, found that 81% of respondents thought that charities should not pay tax on money donated to them [8]. When asked specifically about VAT, 63% thought that the government should amend VAT laws to ensure that charities can reclaim VAT on all products and services in order to reduce charities’ tax bills. Only 15% thought that the government should not amend the VAT laws.


Review the operation of Corporate Gift Aid to ensure it works best for charities and businesses

Corporate giving is declining steadily, with figures showing private sector donations at £1 billion in 2013/14, compared to £1.5 billion in 2007/8 [9]. What is more, with the rate of Corporation Tax being reduced from 20% to 17% by 2020, the value of Corporate Gift Aid is also reducing. This is therefore the right time to make sure that the system works as effectively as possible for both charities and businesses.

A review of Corporate Gift Aid is needed to evaluate whether the existing system works as well as it can to both encourage corporate giving and maximise the value of donations given. For example, could a policy change which allows the charity to claim the tax relief, as is the case with individuals through Gift Aid, potentially increase the value of corporate donations to the sector?


Increase mandatory business rate relief to 100%

Projections show that charities will be paying £432 million a year in business rates by the end of the decade [10]. This is a significant cost to the charity sector and diverts resources from frontline activities which could be better spent by organisations to further their charitable objectives.

Business rate relief is a crucial factor in the viability and success of charity shops – by raising mandatory business rate relief charity shops would deliver more income for their causes as well as encourage other charities to explore the opportunity to realise the potential of trading. A 2013 report by Demos showed charity shops make a huge contribution to environmental and social value to Britain’s high streets and ensuring the right framework for them to thrive can play a key role in creating the shared society [11].

The previously mentioned poll, carried out by ComRes on behalf of the IoF and CFG, found that only 17% of the public believed that charities should pay business rates. The Institute of Fundraising therefore echoes calls made previously to increase the mandatory charitable rate relief to 100%.

Read IoF Head of Media and Public Affairs, Mike Smith's latest blog post ahead of the Budget 2017


[1] Local Giving; Local Charity and Community Group Sustainability Report, 2016
[2] NCVO Civil Society Almanac; 2016
[3] TNS; 2008
[4] Cabinet Office Behavioural Insights Team; Applying Behavioural Insights to Charitable Giving, 2013
[5] Behavioural Insights Team and University of Bristol; Legacy Giving and Behavioural Insights, 2016
[6] Charity Tax Group; 2017
[7] Charity Finance Group; 2017
[8] he Institute of Fundraising and the Charity Finance Group jointed commissioned ComRes to interview 2,024 GB adults online between the 19th and 20th October 2016. Data were weighted to be nationally representative of all GB adults aged 18+. ComRes is a member of the British Polling Council and abides by its rules.
[9] NCVO Civil Society Almanac; 2016
[10] Forecast by Charity Finance Group; 2017
[11] Demos, Giving Something Back, 2013