Experts demand ‘positive change’ to charity tax after budget

28 Oct 2021 News

The government must reduce the tax burden on charities and stop treating them as a “poor relation”, finance experts said after yesterday’s budget and spending review.

The Charity Tax Group (CTG), which represents 800 voluntary bodies, said that charity beneficiaries will be adversely affected if the government did not introduce “positive change” to the way the sector was taxed.

The call comes after the chancellor announced plans to extend business rate discounts for thousands of charities, but failed to address concerns around Gift Aid and research and development reliefs.

Tax will impact ‘people and causes’  

Richard Bray, the chair of the CTG, said that charities “are the embodiment” of strong local communities, “yet they continue to be treated as the poor relation when the government is providing support”.  

He reiterated calls for the government to reform the tax system.

“If the government is truly committed to levelling up, it must recognise that charities are the lifeblood of their communities,” he said. 

“They cannot continue to pay more tax without there being adverse impacts on the people and causes they support and thereby on the communities that the government says it wants to support. CTG will continue to argue that the tax system needs positive change to support the work of charities.”

Business rates, Gift Aid and research reliefs 

The chancellor, Rishi Sunak, announced that the multiplier, which helps determine business rates, will be frozen, reducing the rates paid by retailers including charities.

CTG welcomed the move, which it said is worth up to £2bn to the sector.

Sunak also said that charities working in retail, leisure and hospitality will be eligible for a business rate discount of 50%, capped at £110,000 a year. This adapts a scheme introduced during the Covid-19 lockdowns.

The chancellor announced extra investment in HMRC, but did not make any commitments on reforming Gift Aid, something on which CTG has long campaigned with other experts including the Charity Finance Group (CFG).

Bray said: “The £136m investment in HMRC systems is good news and we urge HMRC to continue to invest time and resources into the Future of Gift Aid project.”

CTG said that the government had “missed a trick” when ignoring research charities in plans to increase research and development funding. 

Frustration over DCMS budget

Experts also expressed frustration at uncertainty about funding for the Department for Digital, Culture, Media and Sport (DCMS), which has overall responsibility for policies affecting charities.

Budget documents suggest that DCMS will receive an average 2.9% real-terms annual increase in funding, but CFG explained in a statement that, because of confusion caused by moving spending between the department’s day-to-day and capital budgets, “it is hard to tell if this is a budget cut or increase”.

Unlike previous years, there is no information about funding for the Civil Society and Youth Directorate, the civil service department inside DCMS dedicated to charities. This results in “a further lack of clarity”, CFG said.

The documents show that the Charity Commission will receive a funding boost of around £2m in 2022-23, taking its budget to £29.8m, before it falls back to £29m in 2024-25.

Helen Stephenson, the chief executive of the Commission, said: “I am pleased that the Commission has secured additional operational and capital funding over the next three years. 

“This settlement recognises the crucial role the Commission plays in regulating charities in the public interest, ensuring charity can thrive and inspire trust, and meet its potential as society recovers from the pandemic.” 

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