8th September 2022HW Fisher calls for tax reforms to alleviate the ‘cost of giving’ crisis on UK charities

Charities in the UK are facing a growing number of pressures in response to the cost of living crisis. Not only are they starting to see a decline in donations, but they are also reporting increased demand for their services and higher operating costs.

According to recent research by the Charities Aid Foundation:

• 14% of people plan to cut back on charity donations in the next six months to help manage their bills
• 59% of charity leaders are concerned about people having less money to donate to their cause
• 71% of charity leaders are worried about managing an increase in demand on their services
• 82% of charities leaders are concerned about the increased cost of utilities
• 35% of charities are worried about their organisation struggling to survive

Russell Nathan, Senior Partner at UK accountancy firm HW Fisher, says “At what is already a difficult time for charities, they also face a number of outdated, overlooked and in some cases unclear UK tax policies. This includes stealth taxes, unfair VAT clauses in government contracts, distortion of competition against local authorities and the lack of a Brexit dividend.”

To give domestic charities a fighting chance, Nathan suggests four ways that the UK government could better support charities through tax relief during this uncertain time:

1. Increase gift aid – Gift Aid is a tax relief that allows UK charities to reclaim an extra 25% in tax on every eligible donation made by a UK taxpayer. To combat the decline in donations, the government could raise gift aid to 30% for a set period of time. This would be particularly beneficial for public services that the government already relies on – including charities that support the NHS and food banks.
2. Bring in a Domestic Reverse Charge – Charities could self-account for VAT at 5% if they are VAT registered. If not, a rebate scheme could be introduced, similar to a scheme that is already set up for listed places of worship.
3. Introduce an energy cap – Currently energy caps only apply to domestic households. The government could defend the energy bills of charities by extending this cap to charity owned facilities and buildings.
4. Raise tax-free mileage for charity workers – Petrol prices are at an all time high and the current tax-free mileage rate needs to be adjusted in line with inflation. To support charity workers who depend on their cars to work, the government could raise the 45p tax free mileage rate to 55p.

Nathan adds: “The Government must learn the lessons of previous recessions. The financial crash in 2008 and the subsequent recession had a significant impact on charitable donations, and the aftermath of the Covid pandemic will be the same. We also know that not all charities will be affected equally, and so it is important for the Government to introduce measures that will support all charities operating in the UK.

We understand that not all of these changes can happen at once – but small changes can have the potential to make a big difference. In many cases, a simple review of policies that are already in place and adjusting them to better reflect today’s economic environment would have a significant impact for charities that are struggling. ”

If you would like to discuss your specific circumstances, please do get in touch.