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New charities miss out on National Insurance holiday

Finance | Vibeka Mair | 11 Jan 2011

Newly-registered charities have narrowly missed out on a National Insurance holiday after MPs voted against amending a clause in the National Insurance Contributions Bill.

The clause excludes charities from a scheme which gives new businesses in areas outside London and the South East (registered since 22 June 2010) a substantial reduction in their employer National Insurance contributions over three years.

The vote, which took place just before Christmas, was decided by a majority of just one, and will mean newly-formed charities which do not have a business element will not qualify for a National Insurance holiday.The NCVO estimates that the cost of this decision to the affected newly-registered charities will be around £1m.

The clause relating to the holiday states: “It is not specifically designed to help charities, but to help the wealth-creation sector".

During a debate on the above clause a number of Labour MPs vehemently opposed its contents and its reasoning. George Howarth, Labour MP for Knowsley, said: “I am slightly surprised that the minister has taken that line, because charities are important players in our economy. Although they may not be out to make a profit, they are often enterprising institutions – and employing institutions, hiring various staff in many different cases – and they deserve our support and encouragement.”

Christopher Leslie, Labour MP for Nottingham East, added: “We have some 140,000 charities in the UK as a whole, and I am told that some 5,000 new charities start up each year, so something in the order of 2 or 3 per cent of the total quantum of charitable institutions are new start-ups, which could mean that there are several thousand charities nationwide that might feel that they could benefit from the National Insurance holiday arrangement, but are not evidently able to do so from the provisions set out in the Bill.”

However, Richard Harrington, Conservative MP for Watford, argued that Leslie’s point was a red herring: “Having worked in the charitable sector, I know that charities receive many other benefits such as tax-free status and that most charitable start-ups do not actually have employees at all.

“Given that everything is about money, and that the government are helping charities in many other ways, it is not relevant to include the charitable sector within the Bill.”

David Gauke, Conservative MP for South West Hertfordshire, added that charities which traded would be included and if the amendment went through to extend eligibility to new non-trading charities it would not support the objective of encouraging new entrepreneurs to set up in business in areas with a high proportion of public sector employment.

Stella Creasy, Labour MP for Walthamstow, said she had been in contact with NCVO who supported the amendment and had estimated that extending the National Insurance holiday to new charities could generate an additional 2,500 start-up charities. The NCVO has also estimated that the NI bill for new charities in the relevant areas would be in the region of £1m.

The debate ended in a vote, which saw seven Labour MPs vote to amend the clause, and eight Tory and Liberal Democrat MPs vote to leave the clause as it stands. 

The Bill has now completed its committee stage.  The Bill will be reprinted to incorporate the changes made during committee consideration of the Bill and is waiting for its Report stage on the floor of the House.

It is still due to be debated in the House of Lords.

The Bill makes provision for two measures:

• an increase in the rates of National Insurance contributions paid by employees, employers and the self-employed, from 6 April 2011, by 1 percentage point
• a regional employer National Insurance contributions holiday for new businesses – which was launched on 6 September 2010.

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Directory: National Council of Voluntary Organisations (NCVO)