The Charity Tax Group has warned the government that the apprenticeship levy will have a “disproportionate impact” on the charity sector in a submission ahead of the Budget.
The Budget, which will take place on 16 March, and CTG is urging the government to take the opportunity to “tackle a number of outstanding technical and practical difficulties charities currently face with the tax system”.
The government announced its plans to introduce an apprenticeship levy from April 2017 in the spending review and autumn statement last year. It estimated that this will raise £3bn by 2019/20.
Employers with a wage bill of more than £3m will have to pay the levy of 0.5 per cent through Pay As You Earn. And the government will use the money raised to fund apprenticeships. The levy applies across England, Wales, Scotland and Northern Ireland.
The CTG said it believes charities will be “disproportionately affected, particularly in the short term, as the sector is generally not yet geared up to provide apprenticeships, not least because of its enormous reliance on the hard work of dedicated volunteers”.
It added that this is compounded by the requirement that charities use their levy contributions to pay for training costs and not for salaries, and the requirement to use registered providers, which may result in additional administrative and VAT costs.
The CTG added that charities that grant-fund work placements – which is very common among research charities – will also face a disproportionate impact as the responsibility for the levy falls on the employer. As a result, this could reduce the amount of funding available, with may have knock-on effects “on social value and productivity”.
The CTG is asking the government to help the sector by considering greater flexibility in the application of the Apprenticeship Levy contributions, and by meeting with charities to resolve a number of outstanding technical details.
The CTG is also using the submission to ask for the government to clarify in the Budget that charity rate reliefs will not be affected by proposed business rates reform.
It is also calling on the government to make a clear statement supporting the retention of VAT zero rates, and a number of changes to improve the Gift Aid Small Donation Scheme and the donor benefit rules.
It is also asking for the government to introduce an exemption for charities from the new energy tax which is set to come about after the government’s Business Energy Efficiency Review, and to ensure reporting requirements on charities are proportionate.
John Hemming, chair of CTG, said: “The forthcoming Budget offers the government the opportunity to demonstrate strong support for the sector at the start of the new Parliament. Protection of invaluable VAT zero rates and charity rates relief is crucial to the financial sustainability of the sector and we call on the Chancellor to state his clear support for both on Budget day. As always, we urge the government to continue to consult key sector stakeholders, so that we can help to identify any unintended consequences for charities and help to ensure a fairer tax system for charities.”
The CTG’s full submission can be seen here.