The Chancellor’s Budget announcements today have been described as “disappointing” and “not a charitable Budget” by sector organisations and representatives. Its provisions for tax relief could even “strangle” major gifts.
Limit on tax reliefs for high earners
Charities Aid Foundation (CAF) has warned that changes to tax relief announced by the Chancellor could result in lower tax relief on donations of more than £200,000. CAF raised its concerns that this could reduce the amount donated to charity “by millions of pounds each year”.
CAF Chief Executive John Low said: “Government can’t have a philanthropy agenda on the one hand and then introduce measures like this on the other. This change seems to run counter to the very idea of Big Society…
“Tax relief on major donations is not tax avoidance. It is supporting major donations by people who in some cases are donating the proceeds of a lifetime’s work to charity.”
The BBC explained that “a donation of £2 million to a charity would only be tax efficient if the donor had an annual income of £8m or more”.
CAF called for urgent talks with the Treasury to ensure these changes did not affect major gifts in this way.
Stuart Etherington, CEO of NCVO, shared this concern. He said: “The cap on income tax relief for donations really sets alarm bells ringing, as it could impact negatively on income from donations. Eight per cent of donors give almost half of the amount that is given to charities every year, so this measure could have very serious consequences.”
— Beth Breeze (@UKCPhilanthropy) March 21, 2012
No overhaul to tax effective giving methods
The Institute of Fundraising said that the Budget had “failed to deliver the action needed to boost giving and risks leaving charities counting the cost”. The failure of the Government to simplify Gift Aid or Payroll Giving procedures or to invest more in fundraising training meant that it was “not making it easier for charities to deliver the vital services that so many people depend upon,” said Peter Lewis, Chief Executive of the Institute of Fundraising.
“We believe the Chancellor should have used the Budget to create an environment where charities can generate the extra funds they need.”
- Government to work with the charity sector to simplify the administration of Gift Aid in the context of charity shops.
- Self Assessment Donate for tax returns will be withdrawn from April 2012.
- Gift Aid Small Donations Scheme maximum of £5,000 retained but qualifying donations increased to £20
Despite many meetings and much public discussion, there was minimal change to the Gift Aid system.
As announced in the 2011 Budget, from April 2012 the Government will withdraw Self Assessment Donate for tax returns for 2011–12 onwards. This offered tax payers the opportunity to make tax-efficient donations of any tax owing to them.
Also as announced in 2011, the Government will introduce a new Gift Aid small donations scheme from April 2013 to enable charities to claim a Gift Aid style top-up payment on up to £5,000 of small donations, without the need to collect Gift Aid declarations. Under the Gift Aid Small Donations Scheme charities will be able to claim the new payment on donations of £20 or less, up from the original £10 or less.
The Government has said that it will work with the charity sector to simplify the administration of Gift Aid in the context of charity shops.
As announced in the 2011 Budget, from April 2012 where taxpayers donate a pre-eminent object or collection of objects to the nation and that object is accepted, the taxpayer will receive a reduction in their tax liability based on a set percentage of the value of the object they are donating. For individuals the tax reduction will be 30% and for companies 20%.
Chas Roy-Chowdhury, Head of Taxation at ACCA, said: “There are no surprises for ACCA when it comes to today’s Budget and Gift Aid or charitable giving – much of what has been planned was announced in last year’s Budget.
“Simplifying the system is a must, as this will encourage people to donate and gift. But it’s shame we have to wait until April 2013 for the Gift Aid Small Donations Scheme. This was announced at Budget 2011, with the Government stating that it will introduce a new Gift Aid small donations scheme from April 2013 to enable charities to claim a Gift Aid style top-up payment on up to £5,000 of small donations, without the need to collect Gift Aid declarations. Charities will be able to claim the new payment on donations of £20 or less. But this is still a year away.”
Inheritance tax threshold rate
The Chancellor confirmed the new IHT rate for deaths on or after 6 April 2012 where 10% or more of a deceased person’s net estate is left to charity.
The Chancellor confirmed the government’s continued commitment to meet its schedule of investing 0.7% of national income in aid in 2013.
Development charity Sightsavers welcomed the commitment. Dominic Haslam, Director of Policy and Strategic Programme Support at the charity, said: “The UK government’s continued commitment to spending 0.7% GNI on aid will have a huge positive impact on the welfare of the world’s most vulnerable people, including those with disabilities. We know that aid can set these people and their families on the path to a brighter, more self-sufficient future as well as alleviating suffering in the short-term where needed.”
Sightsavers has a three-year Programme Partnership Arrangement with the Department for International Development (DFID).
Watson Phillips Norman
Gail Cookson, Strategy partner at response and DM agency Watson Phillips Norman, said:
“The real challenge in any downturn is to regular giving since its harder to commit if you’re unsure of your personal circumstances. This downturn has been no different, and as our work with charities has shown, regular giving continues to be a tough ask. However the Institute of Fundraising also reports that two thirds of people give because they are asked to, whether that is via charity personnel on the street, through their letterboxes via direct mail or in their living rooms through DRTV. This is even more pertinent given that Osborne’s changes only affect wealthier, and therefore minority numbers of donors.
“The message is clear: if you don’t ask, you won’t get. if you’re asking now, make it a tangible ask, so the public can see exactly what difference their hard-earned pounds are making.”
Convio, which supplies fundraising software to the third sector and works with charities such as Cancer Research UK, UNICEF UK and The Salvation Army, believes the 2012 budget could been much more supportive to charities.
“George Osborne said it was a ‘reforming budget’ whilst the opposition said it was a ‘millionaires’ budget’ – it certainly was not a ‘charitable’ budget’,” said Martin Campbell, UK MD, Convio. “Gift Aid relief is so important for charities and whilst we welcome the doubling of the maximum donation amount for which they no longer have to get signed gift aid declarations, this could easily have been greater. The overall amount charities can claim for stays the same at £5,000 so there is little tangible difference.”
“When you factor in the capping of tax relief to prevent the rich reducing their tax liabilities, which even the government has admitted may impact on charitable donations, then it is clear that helping charities was not top of the agenda for this budget.”
Nick Pride, Managing Director at Cheltenham-based direct marketing agency DMS, said:
“At a time when budget cuts and economic constraints are putting ever greater burdens on the third sector, and when the sector itself is having to cut services and staff, it is hugely disappointing to hear not one single mention of the sector in the budget speech, and to find ‘charities’ mentioned in just two sections of the budget document.
There was such hope that Gift Aid would be simplified, maybe even strengthened, as a way of supporting the additional burdens that charities will inevitably be shouldering. The outcome is very disappointing. There are just a few small changes which will help small charities, but nothing remotely to respond to the lobbying and hope of the third sector in recent months.
Whilst the headlines in the speech talk about a simplification of pensions, and a suggestion that pensioners will be better off, there is a key piece of detail that could hit our core donors very hard. There will be a freeze on age-related tax allowances that will effectively reduce the income of many pensioners in the coming years. Amongst a constituency that we already know is hard-pressed, having to cut back on expenditure, and reducing their donations to charities, this is really bad news, and it will hit fundraisers hard.
The Scottish Council for Voluntary Organisations said that there was nothing in the Budget that addressed “the real problems facing people today”.
Martin Sime, Chief Executive of SCVO, said: “The UK Government is investing to give tax benefits to the rich when it should be investing in other priorities such as tackling youth unemployment that could help to boost the economy and make a real difference to people.”
NCVO summarised the Budget. “In some respects, this budget has surprisingly little to say and does not go far enough to support charities as they face a triple whammy of rising costs, falling income and increased demand”, it said.
Morag Watson, Tax Director, at charity specialist accountants Scott-Moncrieff who have offices on Edinburgh and Glasgow:
“George Osborne had little to say on the subject of charities in this year’s Budget. The measures focus on Community Amateur Sports Clubs.
“Until now, HM Revenue & Customs has continued to register Community Amateur Sports Clubs (CASCs) and allow Gift Aid repayments on a concessionary basis. Legislation is currently in place which provides a specific exemption for CASCs from corporation tax on interest income and Gif Aid income. However as CASCs are not treated as “charitable companies” for the purposes of the Gift Aid legislation, there is no statutory basis for them to claim repayments of income tax under Gift Aid. Changes will be made which will apply retrospectively from 1 April 2010 for Gift Aid and from 6 April 2010 in respect of Gift Aid claims. This will ensure that CASCs will not need to amend their constitution in order to remain registered as a CASC and they will have a statutory right to make a claim to a repayment of tax under Gift Aid.
“In addition, the practice of making “in-year” claims for repayment of tax on Gift Aid donations has now been put on a statutory footing. HM Revenue & Customs has made certain repayments of Gift Aid to charitable companies and CASCs where a claim is made outside a tax return. Strictly, these claims should be made in a tax return and this measure will simply legislate an existing extra-statutory concession. This measure will apply for claims made on or after 6 April 2012. ”
NCVO’s Budget Report card
Discussion on Twitter via #volsecbudget on the impact of the Budget on the voluntary sector.
Discussion about the Budget in New Philanthropy Capital’s LinkedIn group.
Giving: the cold shoulder? – a CAF blog