Charity finance experts have called on the government to reconsider tax plans ahead of the Spending Review later this month.
The Charity Tax Group (CTG) has written to the Treasury to warn that large research charities are being cut off from research and development tax reliefs, as well as raising concerns about the potential impact on the sector of a proposed increase in National Insurance.
In its own letter to the chancellor of the exchequer, the Charity Finance Group (CFG) has suggested that the Treasury considers a new levy on physical infrastructure projects which could be invested in local programmes.
The groups represent hundreds of charities and infrastructure bodies between them, including NCVO, ACEVO, the Small Charities Coalition, Action for Children and RNLI.
Government should avoid 'regrettable outcome' of tax hike
The CTG explained in its letter that charities had previously been granted access to the Research and Development Credit (RDEC), a form of tax relief designed to encourage research and innovation in the private sector.
However, legislation has since been introduced which makes charities ineligible for the relief. CTG said: “We urge the government to think again as there is a compelling economic argument for charities and universities to benefit from RDEC and similar reliefs as any reliefs will be reinvested in further research driving economic growth for the national economy.”
The letter also draws attention to the proposed 1.25% rise in National Insurance to fund NHS and social care. Charities will be able to access some reliefs on this tax rise, but CTG warned that “employees will still be liable, and this is likely to have a knock-on impact on charities’ wage settlements and therefore payroll costs”.
CTG said: “It would be a regrettable outcome if charities were required to reduce staff numbers or pay as a result of this levy.”
The letter also repeated calls for reform of Gift Aid and the impact of VAT on the charity sector
New levy proposed for social infrastructure
In its letter, CFG said that the government’s levelling up strategy, which is intended to rebalance regional inequality across the country, should explore a new tax to fund investment in social infrastructure.
CFG said that the “strategy should include how to identify and map social infrastructure and how to best fund it. This strategy should explore new ideas to fund social infrastructure such as a levy on physical infrastructure projects to be invested locally.
“Future rounds of the Levelling Up Fund should have a specific focus on social infrastructure investment. We know that there are lower levels of social infrastructure in deprived areas so investment here is essential.”
The CFG letter also proposes creating a Community Wealth Fund funded from dormant assets and giving local groups a bigger say in the distribution of the Shared Prosperity Fund.
In the introduction to its proposals, CFG said that “charities and wider civil society are playing – and will continue to play – an essential role.
“Civil society organisations play a critical part in tackling the UK economy’s current weaknesses, such as unequal economic growth, disparities in productivity and skills shortages.
“Civil society organisations have the knowledge, expertise and proven experience of working with and through our communities to deliver change where it is most needed.”