The Charity Tax Commission has published its report into the tax reliefs available to charities, currently worth approximately £5 billion a year. The report, commissioned in 2017 by the National Council for Voluntary Organisations, specifically focused on the effectiveness of Gift Aid, business rates relief and VAT.
The Commission assessed the effectiveness of the reliefs with reference to three 'pillars':
- Reliefs should support functional activity towards a particular social good or public benefit;
- Reliefs should support individuals who donate to volunteer for charities; and
- Reliefs should allow charities to be efficient and effective and should encourage innovation and collaboration.
After assessing the reliefs against these three pillars, the Commission made a number of recommendations.
One interesting recommendation was that the government establish a Universal Gift Aid Declaration Database (UGADD). This was previously considered when the government consulted on Gift Aid and Digital Giving in 2013 but was not implemented despite support from many respondents. The UGADD would allow donors to fill in one online Gift Aid declaration which would cover all their subsequent donations to charity. Charities would be able to access the declaration, potentially by inputting the donor's National Insurance number or 'Gift Aid number', to check that the donor is eligible to claim Gift Aid.
The report suggested that implementing a UGADD would simplify the Gift Aid declaration process and thus increase the use of Gift Aid. A UGADD may also prevent Gift Aid from being claimed incorrectly as HMRC would be able to check donations against income tax records more easily.
The report made various other recommendations, including:
- Require all employers over a certain size to offer payroll giving;
- Introduce a reporting requirement for charities with an annual revenue of more than £1 million to report the reliefs they have received via Gift Aid, business rates relief and, potentially, VAT relief;
- Require the government and local authorities to publish data and statistics in relation to charitable tax reliefs;
- Consider extending business rates relief to wholly-owned charity trading subsidiaries;
- Remove irrecoverable VAT for charities that share facilities, equipment and buildings;
- Clarify HMRC guidance on VAT-status of money provided under grants and contracts and require public bodies to provide charities with the VAT status of all funding.
The Commission noted that charitable tax reliefs often favour certain types of charities. For example, business rates relief is not available to charities that operate on a completely digital basis while Gift Aid can be administratively burdensome for smaller charities. The report concluded that, in addition to enacting the changes listed above, the government should conduct a long-term review into Gift Aid, business rates relief and VAT with the aim of ensuring that all charities are able to access these benefits.
Alana Petraske, partner in the New York office, is a member of the Charity Tax Commission's advisory body which provides the Commission with financial expertise.