Following its establishment in October 2017, the Charity Tax Commission are undertaking a full review of the tax system for charities. The ‘Charity Tax Commission – call for evidence’ has been published to assist with the review.
Charities’ tax reliefs are estimated to be worth nearly £4 billion a year, with reliefs for individuals worth nearly £1.5 billion a year.
The call for evidence welcomes general comments but, in particular, asks for opinions on the how the current system benefits charities and what could be changed. Areas of consideration include:
VAT
- There is no general relief for charities but there are various special reliefs, exemptions, zero-ratings and concessions. Examples include:
- There are various rules allowing zero-rating for construction of Property, where there is a relevant charitable purpose for the building.
- Advertising can be zero-rated or exempt for charities.
- Sale of donated goods is zero-rated.
- Education provided by charities can be exempt.
- Reduced rate of VAT on fuel and power for a qualifying use.
- Despite these advantages, many charities still suffer irrecoverable VAT, either because they have limited business income or because the Partial exemption rules apply.
Gift Aid
- Individuals with sufficient income can benefit from an increased basic rate band for Gift Aid donations.
- The charity can recover basic rate tax from HMRC on the Gift Aid donations received from individuals.
- The charity can also make use of the Gift Aid Small Donations Scheme where it is not feasible to collect Gift Aid Declarations.
Business rates
- Charities receive a mandatory 80% relief from the business rates bill.
- Some local authorities also give discretionary relief for some or all of the remaining 20%.
Capital Gains Tax
- Charities are exempt from CGT if the gain is applicable to and applied for charitable purposes.
Inheritance Tax
- Leaving a legacy to a Charity is IHT exempt.
- Leaving part of the estate to a charity can also result in a Lower IHT rate applying to the estate.
Social Investment Tax Relief (SITR)
- Individuals that invest in or make loans to charities can claim an income tax reduction under the SITR regime.
- The relief is up to 30% of the investment in shares in Community Interest Companies (CIC), or of the loan to a CIC or charity.
Stamp Duty Land Tax (SDLT)
- Property bought for charitable purposes can be exempt from SDLT.
- Partial relief can be claimed where there is a joint purchase with a non-charity.
The consultation closes on 6th July 2018, and the consultation and reply template can be found here.
Links
Small Charitable Donations repayment scheme
Gift Aid declaration: single donation
Gift Aid declaration: multiple donations
IHT relief: 10% discount for charitable bequests
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