Charity tax reforms could make us more generous

Insight Financial Associates

An independent commission made up of several charity, economic and fiscal experts has published a report containing a number of proposals that would give UK charity tax relief the much-needed overhaul it deserves. 

The Charity Tax Commission, led by Sir Nicholas Montagu, former chairman of the Inland Revenue (now HMRC), found that charity tax relief is in much need of revitalisation.

In an interview with Accountancy Age, Sir Nick said that, “The Charity Tax Commission’s recommendations could help bring the tax treatment for charitable giving into the 21st century and result in a huge increase in the amount of money available for good causes.”

What did they propose?

  1. Gift Aid should be reformed so that unless donors opt out, the value of additional and higher-rate tax reliefs should be directed to charities on top of the basic 25% rate relief. This could increase the amount charities receive per year by an extra £250m.
  2. Launch a Universal Gift Aid Declaration Database (UGADD) to provide a single declaration which individuals could make to cover all their subsequent gifts to charity, cutting out a lot of unnecessary red tape.
  3. Payroll Giving schemes should be mandatory, so employees can opt to give from their pre-tax income. Over 1million employees use them in the UK at the moment.
  4. Simplify VAT to encourage cross-sector partnerships and help the UK increase R&D investment, aiding in productivity and economic growth.
  5. Remove VAT from wills that include charitable donations. The commission estimates that this could generate a further 15,000 charitable legacies a year.
  6. Build public trust by improving openness by making charities with an annual revenue over £1m publish detailed information in their annual reports about the money they receive from tax reliefs.

The commission also highlighted that there is £560m of Gif Aid going unclaimed every year, a figure which could be improved by cutting admin. Over the longer term, the commission recommended a comprehensive review of VAT for charities, a review of business rates relief and further research into Gift Aid.

What does that mean for you?
Well, it’s good news for the charitable individuals out there, as this series of recommendations could revolutionise the way we interact with charities. With so many charities out there relying on donations alone, without any governmental aide, these changes could be all that it takes to give charities a much needed boost, so they can focus on providing essential support and research. If you’d like to consider strategies for charitable giving as part of your personal financial planning, do not hesitate to get in touch.