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Charity tax reforms could unlock a wave of giving

Charity tax reforms could unlock a wave of giving

An independent commission has come up with a series of charity tax reforms which could unlock a wave of giving.

The reform suggests measures aimed at making giving to charities easier, decreasing spending on unnecessary admin and potentially increasing charity income by hundreds of millions per year.

The Charity Tax Commission, led by Sir Nicholas Montagu who was the former chairman of the Inland Revenue (now HMRC), found that charity tax relief is in much need of a radical overhaul.

Changes to the rules around Gift Aid

HMRC adds 25p to every pound given. Along with other reforms, this could incentivise giving and offer financial protection to charities and those who depend on them.

“The present system is entirely geared to analogue and we live in a digital world,” said Sir Nick.

“It has been 20 years since charity tax reliefs were last reviewed. Since then, people increasingly give to charity using contactless or text message.

“The Charity Tax Commission’s recommendations could help bring the tax treatment for charitable giving into the 21st century and result in a huge increase in the amount of money available for good causes,” he said.

What’s on the table

Gift Aid should be reformed, so that unless donors opt out, the value of additional and higher-rate tax reliefs (which reflect the 45% and 40% tax bands) should be directed to charities. This would be on top of the current 25% basic rate relief.

Even if donations stayed stable, this could increase the amount charities receive per year by an extra £250m!

Launch a Universal Gift Aid Declaration Database (UGADD).

This would be a single, enduring declaration which individuals could make to cover all their subsequent gifts to charities

Payroll Giving schemes should be made mandatory. These are the schemes, also known as Workplace Giving or Give as You Earn, where employees can opt to give out of their pre-tax income.

Uptake has increased with 5,500 employers offering such schemes and 1million employees using them.

Simplify VAT

Complicated rules surrounding VAT on facilities, equipment and buildings shared with other organisations mean many charities pay out money they cannot recover.

Reviewing the rules could encourage cross-sector partnerships and help the UK increase R&D investment, aiding productivity and economic growth.

Remove VAT from wills that include a charitable donation

That would give solicitors a greater incentive to raise the possibility of whether someone would like to give a charitable gift in their will. It is estimated this could generate a further 15,000 charitable legacies per year.

Next steps

The Commission, which was convened by the National Council for Voluntary Organisations (NCVO) in 2017, will now wrap up and the measures will go out for consultation and be taken forward by NCVO and others.

Longer term, the commission recommended a comprehensive review of VAT for charities, a review of business rates relief which make not reflect the realities of the digital era, and further research into Gift Aid.