And another thing...
March 2008
Kate Hand outlines CFDG's Budget wish list...
For the 2008/09 budget CFDG prepared a set of recommendations that reflected the breadth of our membership and their concerns. Our submission also recognised the impact of charity finance on the development of a modern and professional voluntary sector, and on the achievement of charities’ objectives. We looked at the new and changing demands that face our members, for example by reviewing the transfer pricing regulations and the treatment of charities supporting a loss making subsidiary. But we also maintained pressure on issues like Gift Aid, irrecoverable VAT and trading rules.
Trading
As more and more charities look to expand their income and their impact, there are still significant barriers in place for charities undertaking trading activities. We suggested that the Government implements the recommendations of the Cabinet Office’s report Private Action, Public Benefit, which would amend the law to allow all legitimate trading to take place within charities without the need for a trading subsidiary. Opposition to this change has in the past come from the small business lobby, in the name of unfair competition. But those charities who wish to trade already do so through trading subsidiaries and these changes would save time and money. In addition, we have recommended that HMRC revoke the changes made in 2006, which disallow trading from within the charity when the trading activity is not wholly primary purpose. The difficulties the current regime presents for charities actually fail to benefit the Government, since profits from trading subsidiaries are Gift Aided back to the parent charity.
Sponsorship
HMRC’s updated guidance on sponsorship in 2006 suggested that sponsorship of primary purpose trading can now be considered taxable, since it could be a means of raising sponsorship income rather than supporting the charity’s objects. In order to remove these difficulties we recommend that sponsorship is simply classified as primary purpose trading or that the small charities trading exemption is raised to £250,000. If HMRC is unwilling to class sponsorship as a primary purpose trade then we would ask that sponsorship of primary purpose trading reverts to being non-taxable.
Gift Aid
We strongly hope that the Government acts in the spirit of our joint response to the Treasury’s Gift Aid Consultation, and adopt an accounts-based system that bypasses the existing rather clumsy Gift Aid declarations. However, if in the short term this is not possible then we would ask that HMRC introduce an error rate of 5%, which would reduce the liabilities of Gift Aid and would particularly encourage its take-up amongst smaller charities. The correct filing of Gift Aid Declarations (GADs) and the maintaining of a Gift Aid database are time consuming and expensive processes, and it is inevitable that a small number of GADs can easily be lost by genuine mistake. We have also considered the increasingly topical area of Gift Aid on goods donated to charity shops. To date, Sue Ryder Care, the PDSA, Help the Aged, the British Heart Foundation and St Giles Hospice have all adopted a time-consuming and bureaucratic process whereby they ask all donors to fill in a form agreeing to donate and to Gift Aid the money for which the item is sold. It would benefit charities, their beneficiaries, the public and indeed the Government if all donated items could be automatically Gift Aided.
Substantial donors
Finally, CFDG also addressed the question of substantial donors and anti-avoidance legislation that was included in HMRC’s recent Tax Simplification Review. Three sub-reviews have been promised by HMRC, one of which was on ‘how anti-avoidance legislation can best meet the aims of simplicity and revenue protection’; the progress of each review will be reported at Budget 2008
We fully support the Government’s efforts to prevent individuals from taking advantage of the tax benefits available to charity donors. However, the generous tax environment that the Government has created for charities itself argues against this legislation, which has a disproportionate impact on law-abiding organisations within the voluntary sector. It is surely contrary to the Government’s intention to penalise charities themselves for the actions of a tiny fraction of donors. We have suggested that the focus should be moved to effective monitoring of individuals’ tax affairs through the existing channels; with s.54 of the Finance Act 2006 (Transactions with Substantial Donors) amended to make it clear that it only applies where the intent of the transaction is to avoid tax.
Author: Kate Hand
Kate Hand is the policy and campaigns officer at CFDG. She comes from a background in environmental policy and campaigning, and is working on web-based policy engagement and regional membership
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