09 April 2020 - Article
Chancellor George Osborne delivered the Coalition government’s Emergency Budget on Tuesday (22 June). The following summarises the points in the Budget likely to have a particular impact on charities and their donors.
Rise in VAT
The much expected rise in VAT (to 20%) will be introduced from 4 January 2011. A rise in VAT has a particularly adverse affect on charities. The Charity Tax Group estimates that the rise will increase the irrecoverable VAT burden on charities by at least £150 million.
The Government meanwhile continues to review the VAT position for charities which share services and are under current rules required to charge each other VAT. The Government has started discussions with charities and other affected sectors to consider options for implementing the EU cost sharing exemption. It will continue those discussions and launch a formal consultation in the autumn.
No change to the current Gift Aid provisions was announced. The Budget Report states that the Government ‘will continue to explore with voluntary sector representatives ways to improve the Gift Aid system and encourage charitable giving.’
Replacement of substantial donor rules
The Government has announced that it will replace the current (and controversial) rules on substantial charity donors and that HMRC will consult informally on draft clauses in the ‘summer’, with a view to publishing final legislation in the autumn.
We understand that the Substantial Donors Working Group (of which Clive Cutbill is a member) expects to have draft legislation ready by the end of July and that once this has been considered by the Group it is intended that the Government will publish a draft for wider consultation.
Rise in Capital Gains Tax
Higher rate tax payers will from 23 June 2010 be liable to pay Capital Gains Tax (‘CGT’) at a rate of 28%. For other tax payers the rate will remain at 18%.
Donations to charities may become more attractive to higher rate tax payers as a result of the rise because the charge to CGT does not arise on donations of qualifying assets to a charity. The tax efficiency of such donations is therefore increased, with higher rate donors standing to ‘save’ a larger amount of tax.
We will keep you updated with any developments in this important area.
The Emergency Budget Report can be downloaded here.