The Charity Finance Directors' Group has called on the government to review tax policies which often burden the charity sector, such as tax avoidance and tax relief, in its response to a government consultation on tax policy.
The government is currently reviewing its approach to tax policy-making. CFDG has called for greater involvement of the charity sector in future tax decisions and for the impact on the charity sector to be included as one of the mandatory Specific Impact Tests used in the new Tax Impact Assessment.
CFDG’s response also notes that as charities face a mix of fully taxable business supplies, exempt business supplies and non-business supplies, navigating through the tax code is difficult, especially for smaller organisations. It cites tax avoidance and reliefs as the main culprits.
CDFG warns that if not carefully formulated, anti-avoidance measures could have the potential to adversely affect the sector.
The response cites the 2006 Substantial Donor Rules as an example:
“The 2006 rules hit charities hard,” says the report. “The administrative requirements were huge, charities bore costs where individuals carried out abuse and the onus fell on charities to monitor substantial donors.
“For large charities with a high volume of donations falling within the rules, compliance has proved near impossible, particularly given the broad scope of the ‘connected parties’ definition. Significantly, the rules also proved to be a disincentive to certain types of charitable giving as charities reported a decrease in large donations.”
Tax relief regime too complex
Further, CFDG says while there are valuable tax relief systems available for the charity sector; the regime is too complex and often does not complement the needs or activities of modern charities:
“For some charities, particularly the smaller ones, utilising the reliefs can be difficult and often require channelling limited resources in to making arrangements,” says the report. “A recent gift aid simplification survey, conducted by CGDG and others, found that 42.3 per cent of over 900 respondents did not maximise their potential income through gift aid due to administrative complexity and expense.”
CFDG adds that the government proposal to make greater use of sunset clauses and post-implementation evaluation of tax relief could lead to uncertainty and instability. It calls for greater consultation prior to the introduction of a relief rather than applying arbitrary sunset clauses.
Meanwhile, CFDG supports the government proposal to confirm the majority of changes to tax law at least three months before they come into effect, and asks that changes are supported with draft primary legislation and significant statutory instruments where appropriate.
