The themes of “Rebuilding Britain” and “Fixing the Foundations” of public finances loomed large in the Budget – but without the inclusion of charities. Charities did get a mention, in contrast to some previous Budgets, but only in relation to charitable business rates relief being removed from private schools and closing the tax gap by preventing certain areas which potentially allowed abuse of the tax rules relating to charities. (Hidden deep in the technical documentation is a mention of a to-be-developed Social Investment Vehicle, which will be spearheaded by the Chief Secretary of the Treasury in conjunction with the Department of Media, Culture and Sport (DCMS), to bring together the government, voluntary sector and socially motivated investors. Very light on detail at the moment, so we wait for more information in due course!)

Before the Budget, the charity sector (via the Civil Society Group, which includes the Charity Finance Group (CFG), the National Council of Voluntary Organisations (NCVO) and others) put forward proposals for the Chancellor to consider in the Budget, including:

• reinstating mandatory reporting of charitable giving by companies
• increasing charity tax limits in line with inflation
• consulting on the introduction of VAT relief on charitable donations and donated goods
• extending charitable rate relief to wholly-owned charity trading subsidiaries
• confirming that funding will be provided to continue HMRC’s review of Gift Aid

None of these were explicitly mentioned in the Budget but HMRC will be strengthened and more clarity was provided on the imposition of VAT on private school fees.

Charities will mainly be affected by employment tax changes: we saw the much-expected rise in Employers’ National Insurance (ER NI) contributions (going from 13.8% to 15%), and the per-employee threshold at which it applies has been lowered from £9,100 to £5,000. These increases have however, been offset by an increase of the Employment Allowance from £5,000 to £10,500, more than doubling the relief. The £100,000 threshold at which this relief fell away completely has also been abolished, meaning even large employers will now be able to claim the allowance. For small charities, the increase in ER NI may be wholly or even more than offset by the welcome lifting of the allowance threshold.

Alongside the ER NI changes, minimum wage rates for 18 to 20-year-olds were increased to £10 per hour (increase of 16.3%), with the government looking to close the gap to the National Living Wage for all adults in due course. The National Living Wage was increased by 6.7% to £12.21 per hour from April 2025. Many charities will acutely feel the impact of these above-inflation rises, while their own funding and income is under pressure.

As expected, capital investment funding was announced (up by £13 billion next year), including investment in transport, property and research & development. This will provide funding for certain relevant charities.

As promised by the Labour government, VAT on private school fees will be levied from January 2025, with business rates charitable relief ending for these schools from April 2025. There is some good news for private schools “wholly or mainly” providing full-time education to pupils with special educational needs and who have an Education, Health and Care Plan. Local authorities and devolved governments which fund these places will be compensated for the VAT, and those schools will remain eligible for charitable business rate relief. To support pupils with special educational needs that can only be met in a private school, local authorities and devolved governments that fund these places will be compensated for the VAT they are charged on those pupils’ fees. Private schools which are “wholly or mainly” concerned with providing full time education to pupils with an Education, Health and Care Plan will remain eligible for business rates charitable relief. This is alongside a £1 billion in uplift for SEND provision.

Besides business rates relief for private schools being abolished, the other main mention of “charity” was in regard to tax abuse clampdown measures. The Budget states: “strengthen existing charity tax rules from April 2026, to prevent abuse and ensure that only the intended tax relief is given to charities.” This relates to a consultation during 2023 on the following areas:

• preventing donors from obtaining a financial benefit from their contributions
• preventing misuse of charitable investment rules
• addressing gaps in non-charitable expenditure rules
• introducing sanctions for charities and Community Amateur Sports Clubs (CASCs) that did not meet their filing and payment obligations

The representations by a number of organisations led to significantly reduced measures being proposed by HMRC. This “tax abuse clampdown” is expected to contribute £0 million in 2024/25, a negligible contribution in 2025/26 and £20 million in 2026/27. Legislation will be tested in a technical consultation.

There are plans for investment in house building, and a consultation on a new long-term social housing rent settlement of 1% above the Consumer Price Index for 5 years which “will offer long term certainty for social housing providers, giving the sector the confidence to build tens of thousands of new social homes.”

In 2025-26, the government will invest £115 million in ‘Connect to Work,’ a new supported employment programme designed to match individuals with disabilities or health conditions to suitable job vacancies and provide the necessary support for them to thrive in their roles. Charities active in this space will benefit from the increased funding. The government is dedicated to tackling the skills challenges that are hindering growth across the nation, while also helping people secure employment. To address these issues, Skills England has already been established. Furthermore, the Budget includes an additional £300 million for further education in England and a £2.3 billion increase in the core schools budget, ensuring real term per pupil funding growth. Spending on preventing homelessness will increase by £233 million in 2025/26 to reach £1 billion in total.

The department’s settlement is focused primarily on the creative industries, and cultural and sports facilities. This may be helpful for charities in those areas but disappointing for most other charities.

 

^{This article was originally published by Stewardship. Lourens du Plessis is the Managing Director of Professional Services at Stewardship and a member of the Charity Community’s Advisory Group.}

^{*The views expressed are the author’s and not ICAEW’s}