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Are there reasons for charity accountants to feel positive about tax?

Author: Richard Bray, Chair, Charity Tax Group

Published: 08 Jun 2022

Are you a glass half full or a glass half empty person? I imagine that many of us who are chartered accountants would have to say that our training encourages us to be more ‘half glass empty’ than ‘half glass full’! The Chancellor's Spring Statement may have given us a perfect opportunity to test that out for ourselves.

The Chancellor’s Spring Statement

Given the current fiscal climate, many of us must be desperate to find the glass half full. So, I want to suggest why on the tax front there have been a couple of positive recent developments. This is important in a period when there is a common feeling that the Government is not listening to charities as much as it should.

On the face of it, the announcement that income tax would fall from 20% to 19% from April 2024 did not seem like good news for the charity sector. This change will have a significant impact on charity Gift Aid claims. There will simply be less tax to claim back. But what was quite remarkable was the announcement that the immediate impact of this change will be offset for three years by a period of transitional relief where, to all intents and purposes, the impact on the value of Gift Aid claims will be delayed. At the Charity Tax Group, we have estimated that this measure will be worth of the order of £250m to the charity sector. As Gift Aid is claimed by so many charities, it will result in a widespread and very welcome benefit.

For those of us whose glass is half empty there will be a likely long-term decline in charity income. But, for those of us whose glass is half full, our sector will get £250m more income than it would otherwise have had. The value of Gift Aid will always be subject to the vagaries of changes in tax rates which is a fact that we just have to learn to live with.

A short history of transitional Gift Aid relief

It is interesting to consider how this measure may have come about. It mirrors a similar relief that was introduced when the income tax rate fell from 22% to 20% some years ago. When the change of rate was announced then, very little thought had been given to the unintended consequences on charities. It was not until the next Budget that transitional relief was announced. This was very much a Charity Tax Group idea which thankfully has stood the test of time. It may also be that the charity sector campaign during the pandemic for Gift Aid emergency relief, which called for a similar arrangement, may have been a trigger to remind Government of this type of relief. We can only speculate.

But, more than the money involved, it gives the glimmer of hope that Government may be remembering charities after all.

Naming of buildings – a further example that the glass is half full

A further recent example of HMRC listening to the charity sector is the change in the Gift Aid guidance relating to the naming of buildings. Wording had been introduced that might have suggested that the naming of a building after a donor could be a donor benefit. This could have denied Gift Aid to charity and donors and had catastrophic consequences for UK philanthropy. The Charity Tax Group approached HMRC, and helpful clarification has been given in the guidance that has removed the ambiguity over this point. Technical complexities still remain in this area and for significant donations it is always wise to take professional advice to avoid potential pitfalls in practice.

Whilst the glass is certainly not full there are at least some encouraging signs that it might be more than half empty.

Free tax guidance for charities

Finally, for ICAEW members who have contacts with charities in London, the Charity Tax Group has joined forces with The City Bridge Trust to help fund the first-year membership contribution. This is a great opportunity for London based charities of any size to access the full benefit of Charity Tax Group membership. Further details can be found from this link. Please pass details of this opportunity onto any London based charity you may work with. It does prove that you can get something for nothing.

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.

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