The Autumn Budget 2024: Insights for charities on the CSG’s proposals

With charities across the UK facing unprecedented financial strain, the Civil Society Group, a collective made up of 80 charity sector and civil society groups, has written an open letter to Chancellor Rachel Reeves urging for key Budget reforms. 

If adopted, these proposals could ease funding pressures, enhance tax reliefs, and ensure fairer contracts for charities delivering public services, making the sector more resilient in challenging economic conditions.

Below, Anna Phillips, Bola Gibson and Robert Davies have given their insights on the letter's proposals around charity shops and trading subsidiaries, corporate support, VAT on donated goods and increasing tax limits.

Charity shops and trading subsidiaries

In its fifth call to action the signatories seek what may be seen as an easy win for the Chancellor: Extending charitable rate relief to wholly-owned trading subsidiaries of charities.  Currently charities and Community Amateur Sports Clubs (CASCs) benefit from 80% mandatory relief from Business Rates where a property is used mainly for charitable purposes. This provides extra revenue to charities and can be topped up by a further 20% relief at the discretion of local authorities.

When it comes to trading, however, it is best and often essential practice, for charities to trade through wholly owned subsidiary companies gift aiding up their profits to their parent charities so that invariably no tax is ultimately paid. This ensures:

1. that the assets of charities are ring-fenced away from the risks associated with trading; and
2. that income from the trading itself does not exceed the small-scale trading exemption afforded to charities themselves.
   

The attractiveness to central government of extending relief to trading subsidiary is twofold:

• First some local authorities already extend the exemptions to trading subsidiaries of charities (particularly in relation to charity shops), meaning that the change would only cement what in some cases is already taking place.

• Second (and although arguably this should make a difference) the cost of this change would come from local government (rather than central government) budgets.

One could say it’s a win, win for the Chancellor, or at least an easy win. The balancing act here is that many local authorities are already on the verge of declaring themselves insolvent. As such, however, it also makes a huge of amount of sense to boil relief which those local authorities currently exercising their discretion in charities favour might in challenging times be financially bound to retract: This is especially so when the third sector does so much to shore up civil society which, of course, the government is now challenged like never before to do!

Corporate support

In their second call to action the signatories also seek reinstatement of mandatory reporting of charitable giving by companies.

The requirement for companies to report their charitable giving is, on the whole, a reasonable idea. This type of requirement has been used in the past to good effect, for example the requirement for certain companies to report their carbon emissions or their gender pay gaps. It can raise awareness of an issue and drive behaviours which deliver some social benefit. A number of larger companies already report on their charitable contributions and the impact of their work on society either as part of their annual accounts or in separate ESG reports. For these larger companies, a new requirement such as this would pose little challenge.

 That said, there are a number of businesses who would find this requirement challenging for a number of possible reasons. Much of this perceived or actual difficulty will be defined by how the guidance is laid out. For example,

1. Will that guidance only relate to direct giving to a registered charity? Will other community investment activity be included? And if not, will this distort the way a company chooses to distribute its resources for public good? 

2. How much might compliance cost for companies that currently do not engage in charitable giving, or don't have the infrastructure in place to capture their activity in a way that makes reporting possible?

3. Will company structures affect how they can report? For example, an LLP where the partners are making the charitable contribution thereby enabling the charity to apply for gift aid while receiving tax relief themselves might not be able to report the partner contributions as company contributions.

 None of these issues are insurmountable but would need to be carefully considered if this were adopted.  It may be that carbon and pay gap reporting holds lessons that can be learned here. Regulation could start with the largest companies which already have the infrastructure and the resources in place to comply (and who may already be reporting to some extent) before moving down the chain to smaller companies and SMEs. There’s also an argument that perhaps stringent requirements may be counterproductive, and clearer guidance and best practice, along with recognition could deliver the change that charities, and civil society more broadly, desires.

VAT on donated goods

With 'Red Tape slashing' back in the news again this one, VAT is one area that it is hoped the government will review, not least because of the wider impact that VAT registration issues are having on smaller businesses.

Specifically, there is a strong desire for the government to bring forward the consultation on VAT relief on everyday goods donated to charity to be given to those in need.  This was initially announced on 18 April 2024, but the consultation never commenced due to the subsequent election.  Currently, when businesses donate goods to charity that are sold on, they do not pay VAT on those goods.  However, if the goods are donated to charity and then given by the charity to people in need (such as at food banks or shelters), the company must account for the input VAT in their next VAT return.  This creates an unnecessary administrative burden, alongside the real cost to the business associated with any such social and charitable ambitions.  We hope that the government will introduce this change and with as wider a category of goods as can be sensibly expected, to ensure that it does not only improve the position for a narrow range of items.

The hope of course is that any change is also widely publicised so that businesses are encouraged to engage in this sort of behaviour.

Increasing tax limits

Threshold freezing has become an all too accepted way in which to increase tax revenues, with multiple examples across the main taxes.

In the charity sector, a number of limits have been unchanged for some time, such as:

• the gift aid small donation scheme cap of £8,000
• The maximum permitted small trading turnover of £8,000 or £80,000
• The Gift Aid total benefit value cap of £2,500

One hopes that these will be increased in line with inflation, or indeed restored to such position as would be the case where they had not been kept at certain levels previously.