Charity Commission recommends overhaul of UK charity tax system – Pt 3

In this blog series, Catriona Finnie, charity tax expert at Chiene + Tait outlines the key findings of the Charity Tax Commission report into the current charity tax system and outlines how the recommendations could impact charities in the future.

In this third, and last part, of her series, Catriona reviews the other recommendations highlighted by the Charity Tax Commission including Social Investment Tax Relief (SITR) and Stamp Duty Land Tax.

Blog 3 – Other Recommendations

 

Whilst the report focussed on the main types of relief that charities benefit from; namely Gift Aid, VAT and business rates relief, the report also included recommendations on other areas of charity tax.

 

Social Investment Tax Relief (SITR)

  • SITR was brought in to encourage social investment. This relief works by offering investors a deduction from their next income tax bill (based on the value of their investment into qualifying organisations).
  • The uptake of this tax relief, aimed at philanthropists, has not had a high take up since its introduction. In order to try to increase uptake, the Commission recommends that the list of exclusions and the investment cap are reviewed.

 

Stamp Duty Land Tax

  • A review of the system with respect to simplifying the relief and providing clarity to charities.
  • It was also recommended that charity relief be extended to unincorporated charities.
  • The Commission also believes that the same principles should also be explored in Scotland and Wales; where devolved administrations are responsible for this regime.

 

Mergers and Property Transfers

  • The Government should consider using the accounting definitions of grouping for tax purposes in the areas of merging and property transfers. The Commission felt that the current legislation, by relying on shareholdings, excluded some charities from benefitting from exemptions.

 

Climate Change Levy (CCL)

  • The Government should consider using income from CCL to contribute to energy efficiency grants for village and community halls.
  • Government guidance should also be prepared for energy suppliers to clarify relief available to unregistered charities.

 

Incentivising Giving

  • All employers should offer a payroll giving scheme for employees.
  • Payroll giving schemes can be operated on an account-based system i.e. donations from employees go to a pool of money that donors can then distribute to charities as they see fit. This would avoid employees having to commit to a single charity when they set up their payroll giving scheme.
  • Remove VAT charges on will writing, where there is a gift to a charity included in the will.

 

Charity Fundraising and Trading

  • The Commission felt that this area should be considered further, specifically whether the primary purpose exemption for charities should be extended to apply to all trades if and only if the trade profits are applied for charitable purposes.

 

Catriona Finnie is a member of the HMRC Gift Aid Working Group that was created to consider how to increase the effectiveness of UK Gift Aid relief. Catriona is also the tax specialist on the Chiene + Tait Charity Group that assess new legislation and regulation for charities, which informs our clients on future changes. If you have any queries about this article, feel free to contact our charity team today at charities@chiene.co.uk.