The Budget – the biggest fiscal event of the year – is under a week away. This blog – in what is now CFG tradition – outlines the tax reforms that CFG has presented to the Chancellor in the run up to Budget in collaboration with other leading charity infrastructure bodies.
If you want more detailed analysis of the existing charity tax system and how it can be reformed you can download CFG’s Charity Tax Plan.
This is the first of two budgets this year as the Chancellor makes the move away from having an Autumn Statement and a Spring Budget to a Spring Statement and an Autumn Budget.
The Government’s motivation for this is to only have one major fiscal event a year.
As a result of this change, charities will not have an opportunity to hold the Government to account over their spending, something that I highlighted in CFG’s Autumn Statement 2016 Live Blog.
But looking on the bright side, we have two opportunities in 2017 to affect charity tax reform – that is two opportunities to free up billions more for charities at a time when we the sector is facing: increasing, more complex demands; increasing pressure on finances; and increasing uncertainty for the future.
Ahead of every Budget CFG coordinates a joint-submission to the Chancellor with other membership charities including: Association of Charitable Foundations, Charity Finance Group, Children England, Institute of Fundraising, Locality, NAVCA, Small Charities Coalition, Social Enterprise UK and Voice4Change England.
Our Spring Budget 2017 submission detailed a series of proposals to reform the tax system:
1) Reduce Irrecoverable VAT: This wouldn’t be a CFG Budget blog if we didn’t mention Irrecoverable VAT. Resources meant for public benefit should not be wasted due to complexities within a system that was designed without the unique position of charities in mind. By introducing a rebate mechanism we could see as much as £1.5 billion a year being pumped back into the sector.
2) Increase mandatory charitable non-domestic business rate relief to 100%: Under the current system, the cost of business rates for charities are set to double by 2020. Costing £432 million/year.
In 2010-11, charities received just over £1bn in mandatory rate relief, and around £10m in discretionary rate relief. This means that charities had an overall ‘business rates bill’ of £210m (the total cost of business rates minus the amount of discretionary rate relief received). According to the latest DCLG data, the cost of business rates will be £1.76bn in 2017-18 and charities will receive around £51m in discretionary rate relief. This means that the total ‘business rates bill’ for charities will have risen to £391m a year.
By increasing mandatory business rate relief to 100% the government would be cutting red tape, and ensuring those that need the most help receive it. It would also be in line with public opinion. A nationally representative poll carried out by ComRes on behalf of Charity Finance Group and Institute of Fundraising, found that only 17% of the public believed that charities should pay business rates.
3) Increase pay back of National Insurance Contributions for charities: This is to specifically address the additional cost of the National Living Wage incurred by charities. This would provide support relative to that currently enjoyed by private businesses (through measures such as corporation tax cuts) to the voluntary sector.
4) Lower the Insurance Premium Tax for charities to 6% – IPT has increased by 100% in the last 18 months to 12%. This is estimated to cost the sector £87 million per year. By introducing a lower rate charities could save millions of pounds every year that could be spent on delivering public benefit. CFG sees this as a step towards abolishing IPT for charities and we are active supporters of the campaign to exempt charities from the tax.
Recognising the social and economic value of the charity sector
In the 2016 Autumn Statement, Phillip Hammond demonstrated that where there is a political will, the government will find the funding. And so CFG will continue to push government to recognise the vital contribution that charities make to society and the economy. As CFG’s CEO has stated:
“Whilst Government continues to believe that private business is the sole driver of economic growth and produces a tax system to match, it ignores the net contribution that charities make to UK Plc which threatens the whole sector and especially small specialist and local charities that are the bedrock of our society.”
CFG will have comprehensive coverage of the Budget and will provide accessible analysis of what the announcements will mean for charities via the following activities:
- Live blog: starting on Tuesday 7th March this will provide coverage of the latest rumours and leaks in the lead up to the Budget, real time update during the chancellor’s speech, and early analysis from CFG’s policy team and experts from, the corporate sector. To make sure you don’t miss out subscribe to the CFG blog!
- Budget briefing: providing in-depth analysis of the announcements and what they mean for charities. This will be emailed to all our members, and available to download online.
- Live Q&A: Log in to twitter at 12pm on Thursday 9 March to ask the CFG policy team any questions you have on the Budget.