Charity Sector Budget Roundup

This budget did not focus heavily on charities or the voluntary sector and hopes that the Charity Commissioners grant might be increased did not come to fruition. However there were a number of key announcements which directly and indirectly impact on the sector.

VAT registration thresholds

It was welcome news that the current VAT threshold of £85,000 will stay the same for the next 2 years. A report by the Office for Tax Simplification suggested that registration threshold could be reduced from £85,000 to £20,000 in order to bring it in line with the rest of Europe. There had been concern that lowering the registration limits would mean that smaller charities would be burdened with the extra administration and cost of accounting for and managing their VAT affairs.  This announcement means that many smaller charities and social enterprises will not be drawn into the VAT regime.

Despite this news VAT remains a very complex area for charities, and charity managers and Trustees should review their income sources regularly to ensure that their treatment remains appropriate for VAT purposes. While HMRC can only go back 4 years to correct historical errors in a VAT-registered organisation, where an organisation has not been VAT registered and should have been there is no such time limit and the financial implications can be high.

Gift aid donor benefits

The government has announced that it will legislate to simplify and make more generous the donor benefit rules that apply to charities claiming gift aid tax relief on donations.  These rules allow charities to give trivial benefits to donors as a way to say  ‘thank you’ for their donation and often to encourage the donor to engage with the organisation beyond the initial donation.    These changes will have effect on and after 6 April 2019.

Currently the rules restrict the level of benefit a donor can receive according to 3 monetary thresholds as follows:

Amount of donation Maximum value of benefit
£0-£100 25% of the donation
£101 – £1,000 £25
£1,001 + 5% of the donation (up to a maximum of £2,500)

 

From the 6 April 2019 the Government will reduce the number of monetary thresholds to the following:

Amount of donation Maximum value of benefit
£0-£100 25% of the donation
£101 + 5% of the donation (up to a maximum of £2,500)

 

The changes not only simplify the rules but also make the benefits donors can receive more generous. For example, a donation of £600 under the current rules would only qualify for a maximum benefit of £25, whereas from 6 April 2019 this would qualify for a benefit of £50.

Other announcements

  • The Government has announced plans to expand the 100% business rate retention pilot to London and councils across England. Under this pilot local councils can retain 100% of the business rates they collect. Charities benefit from a mandatory 80% relief from business rates and councils can apply a further 20% discretionary relief, given the funding position of many councils it certainly seems possible that councils may look at withdrawing the discretionary 20%.
  • The Government announced its intention to freeze the rate of insurance premium tax (IPT) at 12%. This is welcome news following increases in rates over the past two years and fears of further increases in the rate of tax to 20% in line with VAT however calls to exempt charities from IPT were unheeded.
  • The last £36m raised through fines levied on banks after the Libor rigging scandal would go to organisations including armed forces and rescue charities.
  • Charities that provide care at the scene of serious accidents will be able to recover VAT through a grant in the same way as air ambulances and search and rescue charities have done historically.

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