Charity tax reform – are we any closer?

On 17 July 2019, the Charity Tax Commission launched its much-awaited report, “Reforming charity taxation: towards a stronger civil society”. As the name suggests, this sets out its findings and recommendations on reforming the tax treatment of charities, something which hasn’t been reviewed for over 20 years.

The National Council for Voluntary Organisations established the independent commission to look at this issue, which received input from HMRC and HM Treasury.

Sir Nicholas Montague, chair of the commission commented:

“The Charity Tax Commission’s recommendations could help bring the tax treatment for charitable giving into the 21st century and return in a huge increase in the amount of money available for good causes. Yet none of these proposals should involve significant extra public spending or lost revenue. It’s the right time to get on with this.”

The focus was on Gift Aid, VAT and business rates relief, the main reliefs from which charities benefit. Charitable tax breaks are worth £5bn a year.

Short-term recommendations include:

• Reforming Gift Aid – unless the donors opt out, the value of additional (45%) and higher-rate (40%) tax reliefs should be paid to charities – potentially allowing charities to receive a further £250m a year.
• Launching a Universal Gift Aid Declaration Database – providing a single, lasting declaration covering all subsequent gifts to charities.
• Offering a ‘Payroll Giving’ scheme as mandatory – option for workers to donate out of pre-tax income.
• Simplifying VAT – targeting charities using shared resources to support innovative collaboration.
• Potentially extending business rates relief to wholly-owned trading subsidiaries.

The broader long-term recommendations include:

• A complete overhaul of VAT and business rates for charities.
• More research into Gift Aid.

The proposed reforms are not especially revolutionary, leaving some in the sector frustrated, especially as the report was seen as a key opportunity to really push the boat out and achieve some long overdue change to charity taxation.

Given the government’s seeming reluctance to become involved in this area – the Law Commission is still awaiting a response to its report, The Technical Issues in Charity Law– as well as everything that’s going on with Boris and Brexit, many in the sector aren’t holding out too much hope for changes any time soon.