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Drop in income tax could reduce gift aid income by 11 per cent

Finance | 2 Apr 2007

The announcement in the Budget of a drop in the basic rate of income tax from 22 to 20 per cent will have a huge impact on charities reclaiming tax on donations through gift aid, according to CAF. Alex Hardie reports. 

CAF estimates that the amount charities reclaim will drop from £625 million to £554 million. John Conlan, head of charity tax at Baker Tilly confirmed that the change next April will mean that charities will only be able to reclaim 25 pence on every pound donated instead of the current level of 28 pence and calculates that charities will need to increase donations by 3 per cent to sustain current income levels.

It was also announced that the government is to consult with charities on measures to increase take-up of gift aid and conduct an awareness-raising campaign. To facilitate the ability of charities to build relationships with major donors, the Chancellor has increased the value of benefits that donors may receive from 2.5 to 5 per cent of the donation for those donating £1,000 or more, with the upper limit increased to £500 from £250.

Furthermore, the government will also seek to engage with universities to increase awareness and application of gift aid, and other incentives for giving to help drive up donations, as well as support corporates in their work with the third sector. In response to questions raised during the third sector review consultation regarding tax incentives for employers who want to give to charity or encourage employees to volunteer, the government will soon publish updated details that illustrate the incentives for giving and seconding of employees by businesses.

Gordon Brown announced additional support to promote community action and voice with £80 million core funding to grass-roots community organisations. The funding will be run by the Office of the Third Sector, and channelled through third sector partners at a local level such as Community Foundations. Additionally, £11 million from the Invest to Save Budget fund will go to 24 new projects supporting innovative approaches to the delivery of local services by third sector organisations.

The Chancellor also revealed that the Futurebuilders programme will be expanded in its second phase from 2008-2011. Current funding criteria will be widened to enable the sector to apply for funding in all areas of services provision. Currently, applications are eligible for crime, community cohesion, education and learning, health and social care, support for children and young people.

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Directory: Office of the Third Sector