Review of Charity Taxation:Summary of Responses to the Government's Consultation Document
Summary of Responses to the Government's
The Chancellor of the Exchequer, Gordon Brown, launched the Review of Charity Taxation in July 1997. During the first phase of open consultation, over 3000 charities and other interested parties sent in their views on a wide range of subjects. On 9 March 1999 the Government issued a consultation document containing points for consideration and invited comments by 31 August.
There were received some 500 helpful and informative responses to the second phase of consultation from a wide range of individuals and organisations. This Summary sets out the main views received on the points for consideration in the consultation document. It also sets out the views expressed on other matters of concern to the charitable sector, even though those issues may not have been the subject of a point for consideration in the consultation document.
The Summary is being sent to everyone who responded to the consultation document and is also available on the Treasury, Inland Revenue and Customs & Excise Internet sites. Copies of individual submissions may be obtained by writing to the Inland Revenue at the address below unless, exceptionally, a respondent has asked for confidentiality.
Charity representative groups
Other representative groups
Churches and other religious charities
Supporting giving by individuals
Gift Aid - points (i) (v)
There was widespread support from respondents for the proposals to reduce the minimum limit for Gift Aid donations and allow donations to be paid by instalments. Some respondents were content with a reduction to £100 (the amount which currently qualifies for Millennium Gift Aid) but many favoured a lower limit. Amounts of £50 or £20 were commonly suggested.
A number of respondents questioned the need for any limit at all, particularly for regular giving by standing order, direct debit, etc. These respondents felt that withdrawal of the limit would encourage new donors, especially young people, into charitable giving.
Churches were concerned that if the Deed of Covenant scheme was to be abolished, any new tax relief for regular giving should cover cash giving through the collection plate, as well as standing order, direct debit, etc.
Respondents generally welcomed the proposal to simplify the administration of Gift Aid by allowing certification for tax purposes by telephone or through the Internet. Respondents also supported the idea of a reminder on tax returns about the advantages of Gift Aid. But views were more mixed about the value of a facility to carry back higher-rate tax relief for donations into the previous tax year. Some respondents thought that this would not act as a significant incentive for people to give and would confuse people when completing their tax return.
A number of respondents, especially churches, were concerned about the rules for reclaiming excess tax relief from donors who pay tax at a rate below the basic rate of income tax, or who pay no tax at all. They wanted to see basic rate tax relief extended to these donors. Alternatively, they wanted the rules to be changed so that the excess tax relief could be recovered from the charity rather than the donor.
US-style relief - points (vi) (vii)
Only a small number of respondents, mainly charities appealing to affluent donors, wanted to see a US-style relief for charitable donations (where all of the tax relief goes to the donor). Most charities had real anxieties about such a relief. They feared that switching the basic rate tax relief from the charity to the donor would adversely affect their income, because donors would not increase the amount of their donations to compensate for the switch. Some respondents also considered that a US-style relief running in parallel with the existing reliefs would add unwelcome complication to the tax system.
Payroll Giving - points (viii) (xi)
There was strong support for a significant increase in, or abolition of, the £1,200 maximum limit for donations in the Payroll Giving scheme, with a majority in favour of abolition.
While some respondents wanted employers and charities to be able to deal directly with each other, most respondents felt that the requirement to use a Payroll Giving agency charity to distribute funds to charities should remain. This was because agency charities:
- take away much of the administration of the scheme from employers, and
- allow employees unlimited freedom to choose the charity they wish to support.
Without these important advantages, it was felt that the scheme would be significantly less attractive to employers and employees.
Most respondents agreed there was a need for a campaign to promote the Payroll Giving scheme. While the idea of a 10% supplement on donations, allied to such a campaign, was welcomed, many saw new and sustained publicity as the key to increasing awareness and take-up of the scheme. Some therefore suggested that all of the available resources should be re-directed to further publicity measures.
A number of respondents suggested that reduced National Insurance contributions for employers and/or employees would act as an incentive to increase the take-up of the scheme.
Other suggestions for tax incentives for individual giving
Some respondents sought new tax measures to encourage forms of giving other than cash donations. Some asked us to reconsider the case for income tax relief to encourage gifts of assets by individuals. Others asked us to consider an income tax relief for loans to charity.
Supporting Charity businesses
Direct tax - points (xii) - (xiv)
Respondents generally welcomed the possibility of a de minimis exemption for charity businesses for the administrative benefits it would bring to small charities. However, there was concern about the practicality of a two-tiered test and quite a divergence of view about what is "small" in this context views ranged from £10,000 of business turnover to £100,000, or even more.
While respondents acknowledged the need for charity law to protect charitable funds from risk, many were concerned about the administrative burden and complexity involved in setting up and operating a subsidiary company. Some wanted some or all of the profits of charity subsidiaries to be exempted from tax, without having to be passed up to the parent charity under a Deed of Covenant or Gift Aid. A number questioned whether the tax system needed to reflect charity law in this area and wanted all charity trading profits to be relieved from tax, whether carried on by the charity or by a subsidiary.
The proposal that charity subsidiary companies should be able to carry-back Gift Aid donations up to nine months into an earlier accounting period was well received. But respondents went beyond this, calling for such donations to be payable gross, without the requirement for the company to deduct tax and for the charity to reclaim that tax from the Inland Revenue.
Keeping VAT Rules and Reliefs Up to Date - point (xv)
The proposal to zero rate the provision of a bathroom in a day centre or other charity premises was well supported. Some respondents also wanted relief extended to include the provision of kitchens, lifts, hoists and disabled access generally.
Charities also sought a change to the VAT zero rate for sales of donated goods to overcome the effect of anti-avoidance legislation which denies zero-rating for sales limited to particular needy groups.
Other proposals in this area included updating the relief for medical and scientific equipment to include specialised items of general equipment in order to keep pace with technology.
Fundraising Events - points (xvi) - (xviii)
There was strong support for the proposal to extend and align the direct and indirect tax reliefs for fund-raising events, and for simplification of the rules. Respondents gave many useful examples of new and innovative ways in which charities raise funds which they wanted to see covered by the relief. There was particular support for tax relief for those events in which people pay to participate, and for relief for larger scale events which take place over a number of days.
However, there was general acceptance of the need for some restrictions on the relief to avoid distortion of competition with commercial providers. Most respondents favoured a frequency test and/or location test. Restrictions linked to the size of the event were felt to be too restrictive. Some respondents also recognised the tension between those charities that want all of their fund-raising events to be exempt from VAT, and those that do not.
Membership Benefits - points (xix) - (xx)
There was general support for introducing some form of de minimis limit for benefits received in return for membership subscriptions. Respondents had mixed views about whether this should be a set figure, or a percentage of the subscription cost. Some respondents raised concerns about the impact of a Budget 1999 change which made the receipt of minimal benefits exempt from VAT rather than outside the scope. Others acknowledged the difficulties in simplifying this area given the different types and values of benefits to members.
Charity Advertising - points (xxi) - (xxiv)
There was universal support for modernising and simplifying the VAT relief for charity advertising. Respondents welcomed the suggestion for widening the relief to include advertising in new forms of media, such as the Internet, CD rom, etc. and many felt that this should also include associated production costs. Many respondents also wanted the relief extended to include recruitment advertising. Churches wanted stewardship envelopes to be zero-rated.
De-registration - point (xxv)
The proposal to increase the £250 limit below which businesses do not have to account for VAT when they de-register was generally welcomed. Most respondents favoured raising the limit £1000.
Business Rate Relief points (xxvi) - (xxvii)
Many respondents, including local authorities, said they would welcome guidance on the rules for business rate relief to ensure greater consistency of treatment across the UK, although most did not believe there was a significant problem. Some representatives of high street traders voiced their concerns about what they see as the unfair competitive advantage enjoyed by charity shops, although other respondents did not believe that charity shops posed a serious threat to commercial traders and were anxious to retain the existing tax and rating advantages.
Simplifying the tax system for charities
Improving the service points (xxviii) - (xxx)
Many respondents said they would welcome a help-line for charities that provided high-quality, co-ordinated advice covering both direct tax and VAT. Some wanted to see further steps to ensure consistent advice from VAT offices.
The proposal for new and improved guidance on all aspects of charity taxation was welcomed and many useful examples were provided of the areas that should be covered. These included, in particular, the tax treatment of sponsorship income, fund-raising and payments to charity volunteers.
The suggestion for a joint directory was well received, especially by smaller charities. Many respondents said how useful the Internet is to the sector and provided practical suggestions for improving our existing web-sites.
Many respondents continued to request a grant scheme to compensate for charities irrecoverable VAT. Some charities continued to press for equal treatment with local authorities by extending Section 33 of the VAT Act to include charities, although others accepted that this is not a realistic option. Many charities also sought further measures to compensate charities for the withdrawal of payable tax credits on dividends.
In the absence of a VAT grant scheme, many wanted a reduced rate of VAT of 5% for all supplies to charities. A number, especially churches, suggested VAT reduced rates for specific areas such as repairs to listed or historic buildings and admission to cultural events and facilities.
There were also a number of suggestions for changing the rules to increase the amount of VAT charities can recover on their overhead expenses.
Some of the main representative bodies pressed for a reduced rate below 5% (the current minimum permitted) for supplies by charities, to achieve a neutral result overall if the European Commission develops proposals to remove the existing exemptions. Nevertheless, they recognised the need for further research in this area.
There were calls for an adjustment to the existing zero-rate for the supply of goods donated for sale or export by a charity. Charities wanted this to include goods or services donated to a charity for its own use. They argued that VAT-registered businesses are not inclined to give to charities as it creates a VAT liability.
A large number of respondents sought exemption for charities from Insurance Premium Tax. Many drew particular attention to the additional tax burden faced by charities that own listed buildings.
LONDON WC2R 1LB
28 October 1999