The Charity Finance Group has called on the government to change the tax system to enable the charity sector to benefit from an additional £2bn by 2021/22.
In a separate submission ahead of the Autumn Statement CFG has urged the government to take the opportunity to open consultations in five areas, with a view to implementing changes by the 2017 Budget. CFG also co-ordinated a sector-wide submission ahead of the Autumn Statement.
The suggestion that would deliver the most benefit is reducing irrecoverable VAT, which could save the sector £1.35bn per year by 2012/22.
Irrecoverable VAT is the difference between the amount the sector pays and receives in VAT. There are currently rebate systems in place for hospices, blood bikes and rescue charities but CFG would like to see a sector-wide approach from government.
CFG has also suggested that mandatory business rate relief should be increased to 100 per cent. It is currently 80 per cent, with the other 20 per cent at the discretion of local authorities.
CFG also suggests that the relief should be centralised “so that it does not disadvantage local authorities with high levels of charities”.
The third suggestion is to enable higher rate taxpayers to give their individual tax reliefs to charity because “HMRC is aware that many higher rate taxpayers not making use of the gift aid relief that they are entitled to receive”.
CFG suggests that by amending the gift aid claim forms to enable higher-rate tax payers to give all their tax relief directly to the charity could benefit the sector by £50m per year.
CFG also reiterated calls for the Gift Aid Small Donations Scheme to be “substantially” reformed.
The final suggestion is to exempt charities from Insurance Premium Tax. CFG said this could save the sector £87m per year.
‘Tax system is holding the sector back’
Andrew O’Brien, director of policy and engagement at CFG, said: "If we are going to make the most of Brexit, we need to have a strong charity sector which is able to meet the needs of beneficiaries and bring communities together.
“There is a consensus that money given for public benefit shouldn't be taxed. But despite that, the tax system is holding charities back with hundreds of millions being diverted away from the frontline due to a number of historic anomalies such as VAT and business rates. We are urging this new government to use its first Autumn Statement to begin consulting on how we can reform the tax system so that we are able to do more good."