There is a myth that charities don’t pay tax, but this isn’t the case. If you added up the business rates, irrecoverable VAT, insurance premium tax and other levies that charities pay, you’d find that charities hand over billions of pounds every year to the exchequer. This is money that could be going towards their objectives and helping beneficiaries. With this in mind, the Charity Finance Group has put forward a Charity Tax Plan that could inject £2.5bn into charities over the next five years and boost organisations working across the sector. We have also worked with other sector bodies to lobby for tax changes ahead of the Budget.
Back in October, the CFG and the Institute of Fundraising commissioned the polling firm ComRes to find out more about the public’s attitude to charities and tax. The results were surprisingly positive, despite all the negative media attention that has surrounded the sector.
The results show that 81 per cent of people believe that the money they give to charities should not be taxed, with only 9 per cent disagreeing. This is a strong endorsement of Gift Aid, but also, we believe, a strong endorsement of the principle that money given for public benefit should not be taxed.
We also asked if they though we should pay other taxes such as national insurance, business rates, VAT, stamp duty, insurance premium tax and corporation tax. Although we have to remember that people’s understanding of tax is not particularly strong, a number of these – such as business rates and VAT – are reasonably well known.
Again, there was a high level of support for charities not to pay many of these taxes – 31 per cent believe that charities should not pay any of the taxes we listed. There was reasonable support for charities paying national insurance contributions (38 per cent) – something that charities appreciate is necessary to support their employees – but this was an outlier. In most other cases, less than one in five members of the public said they believed charities should pay these taxes.
Only 17 per cent of the sample said that charities should pay business rates. Only 15 per cent said they believed charities should pay VAT. And only 11 per cent said charities should pay IPT. Yet in the case of business rates and IPT, the bills are only likely to increase, with the CFG estimating that our business rates bill could double by the end of the decade.
We think this support for protecting charities from tax comes from an understanding that there is no point having tax-free donations if the government is going to get the money anyway through the back door. There is an increasing risk that taxes such as business rates and IPT are becoming stealth taxes on charitable activities.
There was also support for resolving a long-running issue, on which CFG has campaigned for many years: irrecoverable VAT. Sixty-three per cent of the sample said they believed the government should ensure that charities can reclaim VAT on all products and services. Only 18 per cent disagreed with this position.
In most cases there is no clear reason why charities are paying these taxes, merely that they have historically done so. But this is not a good enough reason to maintain the status quo. It is time to organise our tax system rationally so that we get the best outcome for charities and for society as a whole.
In two weeks’ time, the Chancellor will stand up to give his final spring Budget, before the biggest fiscal event in the calendar moves to the autumn. The shopping list on his desk is pretty long. We’ve got a revolt on business rates, a financial crunch in the NHS, the ticking time bomb of adult social care, a lack of affordable housing and cries of underfunding from schools. So it would be incredibly naive to think that sorting out the tax system for charities is anywhere near the top of his agenda – but it should be.
The state currently lacks the resources to meet public expectations that it should deliver in key areas such as health, education, housing, the environment and culture. It is also reticent to raise taxes to pay for delivery. Of course, the government might think that expectations will reduce over time and it is preparing for the long term. But this is highly risky, and there is little evidence to suggest that people are getting less concerned about access to healthcare, dignity in retirement or supporting young people. If anything, demand and expectations are increasing. Moreover, these social services underpin economic performance and growth, which are more important than ever post-Brexit.
So if the government doesn’t want to pay for these services or deliver them itself, it should free up charities to respond to those needs. One of the most efficient ways to do this would be to improve the tax system for charities. There's something for Philip Hammond to think about.
Andrew O'Brien is head of policy and engagement at the Charity Finance Group