Use the Budget to exempt charities from insurance premium tax, Chancellor urged

The Charity Finance Group body has joined with the insurance firm Ecclesiastical to call for an exemption from the tax for voluntary organisations

The Chancellor of the Exchequer should use tomorrow’s Budget to exempt charities from insurance premium tax, according to the Charity Finance Group and the insurance firm Ecclesiastical.

The two organisations have called for an exemption for charities from IPT, which is a tax on general insurance premiums such as buildings or car insurance.

The rate at which it is charged has doubled in the past two years to 12 per cent but there are fears in the sector that the government will increase IPT in line with VAT, which is 20 per cent.

If IPT was increased to 20 per cent, this could cost the charity sector a total of £83m a year, according to previous research from the CFG, with all charities that buy insurance affected by the increases.

Despite this, the government has previously insisted that a charity exemption from IPT would be difficult to implement, although the CFG has disputed this claim.

The call for charities to be exempt from IPT also comes after the launch of a campaign by the Association of British Insurers to freeze IPT at its current rate.

Andrew O’Brien, director of policy and engagement at the CFG, said: "At a time when charities face increasing and more complex demands on services, strain on finances and economic uncertainty, the government should not increase charities’ overheads.

"If the Chancellor decides to raise IPT even higher, the result will simply be less money for charities to spend on their charitable activities. We urge the Chancellor to reduce the costs of IPT for charities in the short term, with a view to exempting charities in the longer term."

David Britton, charity director at Ecclesiastical, said that the recent increases in IPT had left the average charity paying an extra £300 on top of its existing insurance premiums, compared with £150 two years ago.

"The government has long recognised that charities should be treated differently from commercial businesses by granting reductions and exemptions from other taxes, including VAT, business rate relief and Gift Aid, so it seems strange that IPT is currently an exception to that rule," he said.

"Alongside the CFG, we are urging the government to consider very carefully the negative impact the increases in IPT are having on the work that charities do and consider granting them an exemption from this tax."

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