Withers Worldwide

Summary

Wednesday's Budget Report contains a number of important new schemes and proposals which affect charities and other not-for-profit organisations. As in previous years, no charity-specific measures were announced by the Chancellor in his speech but there are a number of proposals in the detailed Budget Report and notices. What follows is a brief summary of the headline proposals - future e-alerts will contain more in depth analysis as the proposals are developed.

Hardship Loan Fund

The most targeted help for the sector is a £20 million Hardship Loan Fund, which will provide grants to support charities affected by the double whammy of falling income and an increased demand for their services. Details of the grant criteria and terms are not yet known, although the Budget Report indicates that the applicant will need to be able to provide evidence of ‘...resource constraints due to cash flow difficulties of increased demand.' The grants will be targeted at charities providing front-line services to the disadvantaged and vulnerable members of society.

Proposed changes to the substantial donor rules

Charity lawyers and fundraisers have long argued for reform to the notoriously complex substantial donor rules. The rules aim to prevent ‘abusive' transactions between charities and those who have donated substantial amounts of money to them. You can read more about the existing rules on our website.

The Chancellor announced an intention to revise the test in the substantial donor rules to avoid an undue burden being placed on charities. Current proposals are to add a ‘motive test' and so provide a suitable exemption for genuine charitable giving. Whether such an amendment will in fact alter the position of charities in a meaningful way will depend on the wording of the test and the evidential burden that will, in practice, need to be satisfied. A change which is unfortunately not now expected until next year.

The Budget Report did, however, raise the threshold for becoming a substantial donor which has increased from £100,000 in the previous 6 years to £150,000 in the same period. Whilst this is useful, it will not help the fundamental problem for charities and their donors, which is that it can be impossible to tell when undertaking a transaction whether the counterparty is (or may be) a substantial donor (or connected to a substantial donor).

Gift Aid proposals regarding the redirection of higher rate relief

Though no decision has yet been announced, the Budget Report states that the Government continues to explore ways to improve Gift Aid. It had been widely hoped that the Chancellor would announce a commitment to reverse the current bureaucracy surrounding the administration of donor Gift Aid declarations. What is more interesting is the announcement that the Government is to commission research into the impact of re-directing higher-rate tax relief from donors to charities. We do not, however, anticipate any new legislation in this area until 2010 at the earliest.

Social investment wholesale bank

Designed to support long-term growth of the third sector, the Budget Report announces a consultation on the possible establishment of a social investment wholesale bank. The Office of the Third Sector is to produce substantive proposals for such an institution.

Proposed consultation on common investment funds and deposit funds

The Budget Report also refers to a consultation process, involving the Charity Commission, on ways to bring these funds ‘more fully' under the Financial Services Authority's regulation. However, given the popularity of these investment vehicles for charitable funds, the Government wishes to ensure that the tax reliefs attaching to them will not be affected.