Charities began the year with the hope that they would see significant reform of the rules on Gift Aid. Debate focused on a report commissioned by the Treasury which proposed a composite rate, where the same tax relief would be paid on donations, whether they came from higher or standard rate taxpayers. Charities and government announced they would meet in a bi-monthly Gift Aid Forum.
However, the sector was left disappointed towards the end of the year when the government refused to commit to major changes.
Charities heard more bad news with the announcement that they would face an extra VAT bill of more than £140m from the start of 2011. Despite protests in Parliament, including a motion by Liam Byrne, the shadow Cabinet Office minister, charities failed to win an exemption from the extra cost.
Charities faced more problems following the Budget in March with the announcement that they would be subjected to new rules aimed at preventing fraudulent claims for Gift Aid and other tax reliefs. Sector lawyers said they had reservations about a new 'fit and proper persons' test which allowed HMRC to stop paying tax relief to a charity if it felt trustees or senior managers did not meet its standards.
Without the test, HMRC said, that tax fraud would amount to hundreds of millions of pounds.
The government did have some better news for charities, with the announcement that a Big Society Bank would be set up to fund charitable lenders, and would receive all the money reclaimed from dormant bank accounts. The bank is expected to launch in April.
Cheques were also in the news for charities, with the announcement at the end of 2009 that they would be abolished by 2018. Charities said they feared that they would face increased costs. However, the Charity Finance Directors’ Group said that the Payments Council had promised to carry out specific research into the effect of the changes on charities.