Income tax cut could cost charities £80m a year in lost Gift Aid, experts suggest

Charities could face a shortfall of £80m a year after 2027 because of a planned reduction in the rate of income tax, experts have indicated.

The change means the value of Gift Aid will fall from 2024, when the basic rate of income tax will be reduced from 20 per cent to 19 per cent, a change announced yesterday during the Chancellor’s Spring Statement.

The Treasury said it will cover the costs of that change for the first three years through transitional funding.

The Charity Tax Group said it was very difficult to forecast economic conditions five years from now, but the three-year transitional funding was likely to cost the government £250m.

Richard Bray, the chair of the CTG, said: “On its own, the announcement that the rate of income tax will decrease from 20 per cent to 19 per cent in April 2024 would have cost the charity sector approximately £250m in lost Gift Aid over three years.

“However, the proposed transitional relief will safeguard over £250m of charity income.”

The Treasury was taking the same approach as the last time a government cut the basic rate of income tax, in 2007, Bray said.

“CTG both suggested and campaigned hard for transitional relief when the basic income tax rate was last decreased in 2007 and we are grateful that the government has had the foresight to introduce a similar measure to protect Gift Aid now,” he said.

“CTG will continue to campaign for an improved Gift Aid system that can result in more Gift Aid being claimed by the time the transition period ends.”

The CTG also repeated its call for charities to be included in research and development tax reliefs, from which they are excluded.

Sam Mercadante, policy and insight manager at the National Council for Voluntary Organisations, said it was very difficult to reach a robust figure on the impact of Gift Aid changes, given that income from Gift Aid fluctuates every year and is already affected by a range of factors.

But she said: “If the 2027 changes the Chancellor announced were already in place today, it would have resulted in a 5 per cent decrease in Gift Aid claimed by charities (£1.33bn instead of £1.4bn [2020/21 figures]).

“However, this figure doesn’t tell us much as it is extremely unlikely giving in 2027 will match 2021.”

Mercadante added: “The more immediate issue for charities is that the ongoing cost of living crisis will not be mitigated for many people by the Chancellor’s announcements, and we expect to see the need for charity support and services to continue to increase over the coming year.”

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