Calls for Evidence As UK Takes First Look at Charity Tax Reliefs in 20 Years

The UK Charity Tax Commission has put out a public call for evidence on whether the tax treatment of charities needs to be reformed for the first time in two decades.

According to the commission, tax reliefs for charities, including business rates relief, gift aid and VAT relief, are estimated to be worth UK £3.77 billion (A $6.8 billion) a year.

The review, which marks the nation’s first comprehensive review of charity taxation and reliefs in more than 20 years, aims to examine the role charities play in society, and seeks to identify ways to improve the efficiency and efficacy of the current system.

Anyone with “relevant knowledge, expertise or experience of the system of charitable tax reliefs in the UK”, including charities, donors, academics, think tanks, representative bodies, accountants, philanthropy and financial advisers and tax professionals, is being invited to make a submission as part of a 16-week consultation period, launched on Thursday.

Charity Tax Commission chair and former chair of the Inland Revenue, Sir Nicholas Montagu, said the charity sector and the environment in which it operated had changed dramatically since the last review and it was time for a “fresh look”.

“It’s 20 years since the last review of how the tax system treats charities, and a lot has changed since then,” Montagu said.

“So it’s time for a fresh look, and we want to hear from a wide range of people with experience and expertise in the field about what changes they think are needed.

“This is not about throwing money at the sector. It’s about using the public money that’s already there to make the system work more effectively for charities and their beneficiaries.”

The Charity Tax Commission, which is supported by the National Council for Voluntary Organisations (NCVO), was launched in October 2017 to undertake a full review of the impact of the tax system on charities.

The review will examine the full range of taxes and tax reliefs that charities and donors are subject to and benefit from – including business rates relief, social investment tax relief, gift aid, VAT exemption and inheritance tax relief.

In particular, the commissioners are interested in receiving views on the extent to which current system directs the activities of charities and encourages certain behaviour.

The commission said against a backdrop of increased scrutiny of how charities spend public money, it was also seeking views on ways to increase transparency without significantly increasing the administrative burden on charities.

In his blog, Montagu said the aim of the commission wasn’t about “making unrealistic recommendations to government which are either politically or economically unachievable”.

“We need to make practical, evidence-based recommendations that will be taken seriously by policymakers, focused on increasing the effectiveness of the spend that goes on current reliefs,” he said.

“That’s why we’ve asked people responding to the call for evidence to demonstrate how ideas for reform keep within current spending by indicating where else in the system savings or efficiencies could be found to allow expenditure in other areas.

“We are particularly interested in views on how far the current system of charity taxation succeeds in benefiting beneficiaries and what, if anything, needs to change to create maximum public benefit.

“We are also keen to hear whether people think the current system is successful in channelling the activities and behaviour of charities in the right direction.”

The call for evidence will close on Friday 6 July. Recommendations are expected to be put to government in spring 2019.