Scottish independent schools and council-created bodies could lose charity tax relief

23 Aug 2017 News

Scottish arms-length external organisations (ALEOs) and private independent schools should lose their charitable rate relief, the Barclay Review of Business Rates has recommended.

The Barclay Review of Non-Domestic Rates was led by Kenneth Barclay, chair of the Scottish Charitable Incorporated Organisation, and aimed to review the non-domestic rates system, often known as business rates, in Scotland to better support business growth, long-term investment and reflect changing marketplaces.

The review said that charity relief should be “reformed/restricted for a small number of recipients”.

It notes an increase in charity relief costs in recent years, and that this is in part down to the creation of ALEOs by councils. ALEOs currently have charitable status, which qualifies them for charity relief.

Charity relief, which is almost entirely funded by the Scottish Government, funding at least 95 per cent of the costs, is awarded by councils to ALEOs which have been created by the councils themselves to deliver services that the councils previously provided directly.

The Barclay Review says that this is tax avoidance and should cease. It said that there is unfair distinctions between councils, as some do not have a high number of ALEOs, and creates unfair competition between the public and private sectors.

The review said: “On the grounds of fairness, we believe there should be a ‘level playing field’ and council ALEOs should no longer be able to abuse the system.”

It added that as there would be scope for some of the ALEO charitable relief to switch to sports relief and therefore reduce the savings generated, it recommended that the eligibility for sports club relief for ALEOs should also be removed.

Independent schools

The review said that it is unfair that independent schools that are charities also benefit from reduced or zero -rated bills, whereas council schools do not qualify and generally will pay rates. It said that “inequality should end by removing eligibility for charity relief from all independent schools”.

It added that independent schools would retain their charitable status and the other benefits it brings them.

It added that university accommodation, when rented outside of term-time and competing with private businesses, should also be liable for rates.

The review estimates that these measures combined would save at least £50m per year, with around £45m coming from ALEOs and £5m from independent schools.

The Barclay Review also said that sports club relief should be “reviewed to ensure it supports affordable community-based facilities, rather than members clubs with significant assets which do not require relief”.

Other recommendations included a new relief for day nurseries to support childcare provisions.

The Scottish Council for Voluntary Organisations said that local authorities and private schools are not genuine third sector organisations.

Martin Sime, chief executive of SCVO, said: “The Barclay Review of Business Rates has recognised the importance of the third sector in Scotland by maintaining relief for charities which provide public benefit.

“SCVO has long believed that arms-length organisations of local authorities and private schools are not genuine third sector organisations so we also welcome the group’s recommendations around removing charitable rate relief from ALEOs and independent schools, which it has recognised as a form of tax avoidance.”

 

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