Tax and VAT
CFG’s key tax and VAT resources can be downloaded at the bottom of this page.
Budget & Autumn Statement
Budgets and Autumn Statements set the tax and spending policies of the government for the following year.
They work within the framework given by Comprehensive Spending Reviews, with the next review due to take place in 2016.
Charities benefit from a number of tax reliefs and many are involved in the delivery of public services, which makes responding and monitoring Budgets and Autumn Statements carefully.
CFG works with other sector bodies to advocate on behalf of charities ahead of each Budget and Autumn Statement. You can read our latest submission here (.PDF).
Gift Aid is a tax relief for individuals that give money to charities.
It is worth over £1bn to charities ever year. Not only does it represent the principle that money given for public benefit should not be taxed, but it is also crucial in creating a positive environment for charitable giving.
The modern Gift Aid scheme was introduced in 2000 and over recent years, growth in Gift Aid claims has fallen.
There are still billions of pounds worth of donations every year that do not have Gift Aid claimed, meaning that charities are forgoing hundreds of millions of pounds worth of tax repayments every year.
CFG wants every eligible donation to be claimed for Gift Aid and is working with government and other charities to improve the operation of the tax relief.
We are part of government’s Gift Aid Working Group and are working with the government to implement the recommendations of the Gift Aid and Digital Giving consultation.
We have worked with HM Treasury to develop a helpful interactive infographic for charities on Gift Aid.
CFG and Sayer Vincent have also produced a guide: Gift Aid made simple (May 2013)
Gift Aid Small Donations Scheme
In April 2013, the government introduced the Gift Aid Small Donations Scheme, to help charities which receive small cash donations claim Gift Aid (which they otherwise would not be able to do).
The scheme is particularly aimed at small charities, both to ensure that they can boost the value of their donations and to encourage them to fundraise.
However, the scheme has so far not reached expectations. CFG is working with government and other charities to improve take up of the scheme as well as reform the scheme to make it easier for charities to claim.
CFG has produced a briefing with NCVO and Institute of Fundraising on the current challenges, and recommendations for how the scheme should be improved.
HMRC also have guidance on the Gift Aid Small Donations Scheme and information on how to claim.
It is estimated that irrecoverable VAT costs charities up to £1.5bn a year.
The burden of irrecoverable VAT reduces the resources that charities can spend on their beneficiaries and creates an uneven playing field for charities that wish to engage in public service delivery.
The tax system should be fair to charities, and resources should not be wasted due to complexities within the VAT system that was not designed with the unique position of charities in mind.
In Autumn Statement 2014 and Budget 2015, the government set up a rebate scheme for hospices, blood bikes and search and rescue charities, proving reform is possible. This should be the start of a process to develop a sector wide rebate scheme.
The European Commission has made clear that this is within the power of the UK Government, so despite VAT being a European issue, Westminster has the power to act.
At a time when our latest survey shows charities are facing increasing demand for their services and all politicians want charities to continue to be part of the delivery of high quality public services, we believe that the next government should begin discussions on a rebate scheme for all charities to be able to reclaim irrecoverable VAT.
CFG advocates the need for reform to the government regularly, and has included it in our post-election priorities for the next government.
CFG & Sayer Vincent have produced a guide for charities – VAT: made simple (June 2011).
Charities and Trading
Charities are increasingly turning to trading to generate income and help them meet their objectives.
Charities are exempt from paying tax on 'Primary Purpose Trading' - trading which is carried out as part of the charity's primary purpose.
For non-charitable trading, charities are exempt from paying tax on trading income up to a limit of 25% of the charity's total incoming resources and no more than £50,000.
CFG continues to work with members on how to support charities that trade and make sure that the best possible environment for trading is put in place.
CFG has also published The Tax Implications of Charity Trading, written by Pesh Framjee and members of the charity tax team at Crowe Clark Whitehill – which is a useful resource for charities engaged in trading activities.
Fit and Proper Persons Test
The Finance Act 2010 introduced a new definition for tax purposes of charities and other organisations entitled to UK charity tax reliefs.
The new definition includes a requirement that to be a charity an organisation must satisfy the 'management condition'. For a charity to satisfy the management condition its managers must be 'fit and proper persons', although there is no definition of this in the legislation.
The loosely defined term has raised concerns about additional levels of regulation and uncertainty for charities, as well as issues regarding the consequences, from a tax perspective, should an organisation cease to meet the conditions.
In April 2010, HMRC published the model Fit and Proper Persons Test which has since be revised to include designing tax avoidance schemes.
CFG has written to HMRC alongside NCVO to raise concerns about this issue and is working with officials on clarifying the tax avoidance part of the test.