In October 2017, an independent Charity Tax Commission was established by the National Council for Voluntary Organisations (NCVO), to undertake a full review of the impact of the tax system on charities.
The last comprehensive government review of charity taxation and reliefs took place over 20 years ago and, since then, the charity sector and the environment in which it operates have evolved dramatically.
With the consultation period for the current review having ended in July 2018, the responses are now being considered.
However, Sir Nicholas Montagu, the Chair of the Commission, has already warned charities should not expect any ‘big ideas’ as a result.
Speaking at the Charity Tax Group’s annual conference, earlier this month, Montagu said he wanted to “manage expectations” and suggested that the majority of the recommendations would call for a further review by government, or additional work due to gaps in data.
He commented: “I hope we come up with things that are sensible and helpful, and advance the cause of charity taxation.”
“But, we deliberately set ourselves the constraint that any proposals we came up with must be fiscally neutral.”
However, many of the proposals that were received by the Commission, during its call for evidence, did little to adhere to the ‘fiscally neutral’ rule.
This can only mean that the views of those responding are at odds with the Commission’s desire to focus on changes to the charity tax system that will either be free or offset by other measures.
Following the Commission’s consideration, a final report and recommendations are expected in July this year, with its likely areas of focus being Gift Aid, business rates relief, VAT and payroll giving.
It is also anticipated that the report will place more emphasis on how charities are treated for tax purposes, with a view to increasing the efficiency and effectiveness of the existing taxation system, than on what is or is not a charity.
Toni Hunter, partner at George Hay and resident charities expert, said: “Working with charities day-to-day and recognising the challenges they face, some of which are a direct result of the charity tax system, we understand the importance of this review.”
“There is some concern that it is not ambitious enough to bring about the change that is really needed and we know many charities will be disappointed with the ‘fiscally neutral’ approach to proceedings.”
“The very least we can hope for, when the final report and recommendations are published, is proposals that are sensible and geared towards advancing the cause of charity taxation, for the good of the sector.”
“Any proposals that will simplify the tax system for charities would be very welcome, and perhaps should be as much of a priority as fiscal neutrality?”
“We will, of course, continue to monitor any developments and report on these as appropriate.”
How can George Hay help?
We know that managing a charity or social enterprise in the current economic climate can be challenging. That is why we have a specialist team on hand to support the not-for-profit sector; providing audit, independent examination reports, accounting, taxation and advisory services to charities, academies, clubs and social enterprises of all sizes.
First and foremost, we can help you to operate in accordance with the current charity tax system, identifying risks and tax planning opportunities, but we can also help you to anticipate and prepare for future changes to the system.
To speak to one of our experts about how we can help, contact us today by calling 01480 426500.