The chancellor has announced that the Spring Budget 2023 will be held on 15 March 2023. With many charities facing unprecedented challenges due to the cost-of-living crisis, Richard Bray, Chair of the Charity Tax Group and a member of ICAEW’s Charity Committee, is asking what charities can expect from the Spring Budget and outlines three key proposals.
What can charities expect from the Spring Budget?
A simple answer to my question is most probably very little when the Budget is announced on 15 March!
As the Government has been focussed on the pandemic and subsequently the cost-of-living crisis, the serious fiscal issues that charities face have been pushed down the pecking order. Whilst this may be understandable, it could have long term consequences. Some charities may have to close their doors whilst others may limp on having utilised their reserves which limits their potential to meet the needs of beneficiaries in the future. It may take several years for many charities to recover.
This article will focus on three key measures that the Charity Tax Group (CTG) would like to see to improve the current situation. I will also explain why we believe these measures are important both now and in the future.
Unlocking Gift Aid potential through reform
CTG has long championed the reform of Gift Aid. We wish to see a Gift Aid system that makes it as simple as possible for donors to make their donations tax effectively.
A thorough reform of Gift Aid will embrace technological change, as well as legislative reform, to help ensure that Gift Aid is the tax relief that it was always intended to be. One where Gift Aid is claimed where it can be and not where it shouldn’t be! This will unlock Gift Aid’s potential and ensure the credibility of the relief for the future, securing income for charities in the longer term.
We have made separate representations to the Government on our proposals for Gift Aid. These ideas are much in line with the Government’s plans for the future administration of the tax system. We have built a credible case, working not only with charities but with Gift Aid intermediaries, professional advisors and academics, as well as HMRC. We believe that HMRC would like to take this forward if the Government will fund it. In the long-term, reforms along these lines are inevitable. It is simply a question of whether we can shape them in an earlier time frame.
Potential for a “Brexit dividend” by reducing the rate of input VAT for charities
We have heard much about the potential for a “Brexit dividend”.
One area where the VAT system could be more helpful for charities is with the burden of irrecoverable VAT.
Our study carried out by London Economics estimated that charities pay £1.8billion in irrecoverable VAT each year that could otherwise be spent on charitable activities.
Our proposal is that charities should pay a reduced rate of input VAT. It is a plausible idea now that we have left the EU. This is a simple concept that could be tailored around what is feasible given the current state of the Government’s finances. The reduced rate could be set a rate that is affordable and then increased over time as Government finances allow. The reduced rate could be arranged in much the same way that we currently use VAT exemption certificates.
Helping the most vulnerable now through extended VAT reliefs on donated goods
We wish to see measures that will enable the charity sector to thrive in the longer term, but we cannot ignore the needs of the vulnerable in the ‘here and now’. That is part of our charitable DNA.
A strong coalition spurred on by the business community has come together to urge a simple VAT reform that would prevent a VAT charge where goods are donated to those in need. Currently, relief from VAT only applies to donated goods for onward sale by the charity. It seems that this proposal is an idea that is apt for our times. It gets around a hurdle to corporate generosity and encourages goods to be utilised and not just wasted. Accepting it would help the Government show that it is taking practical steps to help alleviate the impact of the cost-of-living crisis on those worst affected. Critical to its chances of success must be the coalition that is supporting it.
So, will I be right about the Budget? It will not be long before we find out!
The full CTG Budget submission can be found here.
The Charity Tax Group has been representing charities on tax for the last forty years. Its aims are to create a fairer tax system for charities and to better equip charities to deal with the tax system though newsletters, online training sessions and the resources available on its website – which has been called the taxopedia of charity tax! It is estimated that the Charity Tax Group has secured tax savings of over £10 billion for charities during its lifetime. Find out more at www.charitytaxgroup.org.uk or contact us at info@charitytaxgroup.org.uk.
*The views expressed are the author's and not ICAEW’s.
