The inaugural charity tax map, published last week, provides the first comprehensive analysis of the taxes charities pay and the amounts involved.
The map, produced by the Charity Tax Group and funded by the Nuffield Foundation, is based on data from 31 charities chosen as a representative cross-section. Their annual income ranged from about £1m to £862m. The results show that charities pay somewhere between £2.7bn and £3.7bn - or between 4 and 6 per cent of their income - in tax, and they pay 18 different taxes.
The map highlights the high costs of complying with the tax regime and the variation in the level of tax paid by different charities. It also provides a comprehensive guide to each tax and the regulations and exemptions related to it.
"We started out with the intention of creating a tool for charities to identify what taxes and reliefs they needed to be aware of," says Helen Donoghue, director of the CTG. "In future, we want to use it to map year-on-year changes in charity tax and plot differences between different parts of the voluntary sector."
Of the 18 different taxes, national insurance and VAT make up 54 per cent and 37.5 per cent respectively of charities' total tax liabilities. Of the remainder, business and domestic rates together account for 7 per cent. The remaining 1.5 per cent is made up of 14 taxes paid by only a small number of charities, from landfill tax and the congestion charge to the aggregates tax.
"We believe we've captured every tax that charities are liable for," says Donoghue. "We were very surprised that charities paid some of these taxes. But it always turned out that there was a good reason for it."
Next year, she says, charities will face a nineteenth tax with the introduction of the community infrastructure levy.
The charities surveyed pay an average of 6 per cent of their income on tax, but there are marked variations - some pay only 2 per cent and some as much as 18 per cent. Donoghue says the variations are caused by the nature of a charity's activities. Operational charities with many employees will pay more than grant-givers and charities that rely mainly on volunteers.
The cost of complying with some taxes is greater than the tax itself. The charities surveyed pay only £2,600 in corporation tax, for example, but spend £73,000 on providing information on corporation tax to HM Revenue & Customs.
Overall, charities spend tens of millions of pounds and hundreds of thousands of working hours complying with tax law.
"The complexity of the requirements placed on charities is one of the main things to take from this," says John Hemming, chair of the CTG. "Sometimes you will do something entirely innocent and then discover that you have an entirely new tax burden."
VAT is by far the most complex tax charities face, he says. It accounts for almost 60 per cent of the time charities spent complying with tax law. Hemming says that many charities do not have full-time staff trained in tax matters, which makes complying with the law extremely difficult.
"The amount of tax law that charities have to handle has increased tenfold in the past decade,"
he says. "We hope this will show HMRC where it can simplify the tax burden on charities."
The report also looks in detail at the costs of claiming Gift Aid. Smaller charities spend up to 70p on complaince for every £1 they claim. At the other end of the scale, the National Trust spends only a penny for every £1 of the £26m it claims. Hemming says that costs are likely to be higher for charities smaller than those surveyed.
"Small charities have to seriously consider whether it's worthwhile collecting Gift Aid," he says. "Our report makes the case very strongly for an online filing system, which would reduce the bureaucracy involved for charities and HMRC."
Tax burden on the 31 charities in the survey:
£147.3m Total tax paid
(£2.9m) Compliance costs - compliance costs shown in brackets
£79.5m Employer's national insurance contributions (£1m)
£55.3m Irrecoverable VAT (£1.6m)
£8.6m Business rates (£60,000)
£1.7m Domestic rates (£15,000)
£944,000 Excise duty (£12,000)
£591,000 Insurance premium tax (<£1,000)
£286,000 Air passenger duty (£0)
£182,000 Climate change levy (£1,000)
£53,000 Landfill tax (£1,000)
£45,000 Income tax, excluding Gift Aid (£25,000)
£40,000 Import duty (£2,000)
£22,000 Congestion charge (£2,000)
£11,000 Stamp duty land tax (£12,000)
£4,000 Lottery duty (£6,000)
£2,600 Corporation tax (£73,000)
£0 Stamp duty reserve tax (£1,000)
£0 Capital gains tax (£1,000)
£0 Aggregates tax (£0)
Case studies Variations on the tax theme:
Tax paid: £3.7m
(3.5 per cent of expenditure)
Employer's NICs: £2.7m
Irrecoverable VAT: £562,000
Excise duty: £230,000
Business rates: £80,000
Domestic rates: £45,000
Amnesty International UK
Tax paid: £460,250
(4.2 per cent of expenditure)
Irrecoverable VAT: £299,250
Employer's NICs: £108,000
Business rates: £40,000
Insurance premium tax: £10,000
Air passenger duty: £3,000
Pallant House Gallery
Tax paid: £77,627
(6.4 per cent of expenditure)
Employer's NICs: £50,265
Irrecoverable VAT: £22,782
Insurance premium tax: £4,400
Climate change levy: £180
(Only four tax figures given)
Gift Aid: The Cost of Claiming It
Highest: York Diocese and Board of Finance - £500 Gift Aid Claimed, £350 cost of claiming, £0.70 cost per £ of Gift Aid claimed
Median: RSPB - £6.1m Gift Aid claimed, £230,000 cost of claiming, £0.04 cost per £ of Gift Aid claimed
Lowest: National Trust - £26m Gift Aid claimed, £250,000 cost of claiming, £0.01 cost per £ of Gift Aid claimed
The Charity Tax Group says that Gift Aid costs vary widely among similar-sized charities. Possible reasons include the use of cheaper electronic processing (doing it manually is more expensive), the high cost of operating retail Gift Aid schemes and the greater expense incurred by charities with federated structures.
The CTG says it is possible that some charities do not have complete data on the cost.