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Tax group attacks Leather's Radio 4 comments as 'misconceived'

Finance | Vibeka Mair | 14 Jul 2009

The Charity Tax Group has criticised the chair of the Charity Commission for misrepresenting the tax benefits given to charitable independent schools, live on BBC Radio Four.

This week, the Charity Commission has faced mounting criticism for failing two out of five private schools in its first public benefit assessments.

But on the Today programme yesterday Commission chair Dame Suzi Leather (pictured) defended the Commission’s assessments, saying: “It may be an uncomfortable truth but the fact is that many independent schools are charities and those that are enjoy tax breaks - business tax relief, VAT relief, tax relief on income that would otherwise be considered to be trading profit, and gift aid on donations.

“In return they should offer something tangible to the public along the lines of partnerships or bursaries.”

Leather 'technically incorrect' 

However, Peter Jenkins, consultant to the Charity Tax Group (CTG) called Leather’s comment "somewhat misconceived", explaining that education exemption was only dependent upon charitable status for non-schools.

“She is technically incorrect,” Jenkins told Charity News Alert. “If you are talking about an Ofsted-regulated school its fees are exempt irrespective of charitable status, except for non-schools where educational exemption depends on not being profit-distributing.

"Exemption is in any case really a form of taxation under the VAT system, as it prevents any recovery of VAT on costs. It is equivalent to a VAT rate of between 3 and 4 per cent which state schools don't bear."

He said charity VAT reliefs related only to certain goods and services supplied to a school, such as a disabled lift. "In limited circumstances this might be relevant but it wouldn’t be relevant to the educational exemption,which is not dependant on charitable status under EU law."

VAT relief on inputs 'not such a splendid bargain'

He also questioned whether the highly selective charity VAT reliefs on inputs to schools really provided much  benefit in practice. “You may have an exaggeration of charitable status on the VAT side and find it was not such a splendid bargain on a cost/benefit analysis."
 
Ian Burke, finance and business manager at St Anselm’s School which failed the test for not providing enough bursaries, told Charity News Alert that benefits from gift aid varied from year to year.

“Some years it’s nil, but when we have capital appeals - for example, we are fundraising for an indoor swimming pool - we get some money. In 2009 we estimate to get around £5,000 through gift aid. But on the whole we don’t get donations unless there is a project.”
 
He added that rates relief in 2009 would save the school £21,000 and attacked Leather’s interpretation of VAT relief for independent schools.
 
“We don’t pay corporation tax. But then we don’t get VAT recovery on our expenditure on goods and services as our output, the provision of education, is and would remain exempt."

Jenkins said the loss of relief from corporation tax and rates relief would be a much greater problem than VAT if schools did lose charitable status.

NCVO and Acevo support Leather 

The major sector umbrella bodies have rallied behind the Charity Commission.

Stuart Etherington, chief executive of the NCVO, said: “We are extremely supportive of what the Charity Commission is trying to achieve with the publication of their first-ever public benefit assessments. It makes total sense that charities should be asked how they demonstrate their worth and the good that they do in society.”

Peter Kyle, deputy executive of Acevo, tweeted: “Charity Commission decision on public benefit made the news. I think it was a fair minded decision that hardly threatens independent schools.

“I think it's a mistake for independent schools sector to make such a fuss. Interesting how care homes equally affected but keeping quiet.”

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