Proposals from the Smith Commission to give Scotland powers over the rate of income tax will have “significant implications” for tax relief on donations, charity infrastructure bodies said today.
The Smith Commission, set up to strengthen devolution in the wake of the referendum on independence, published a report today which recommended giving Scotland separate powers to raise income tax.
The rate of gift aid which charities can claim is based on the basic rate of income tax. If this was different on either side of the border, charities would potentially not know what level of tax relief to claim.
The Smith Commission report agrees only heads of agreement and does not give detail on how income tax devolution would work in practice, and the Charity Tax Group and SCVO have both warned that more work is needed to ensure the proposals do not harm giving.
“If there were differing income tax rates in Scotland and the rest of the UK, this could have significant implications for gift aid, causing complexity for both donors and charities, and further information is needed on whether gift aid will continue to operate on a UK-wide basis,” the Charity Tax Group said in a statement released today.
Ruchir Shah, head of policy at SCVO and a member of the CTG management committee, said: “Further detail is needed on the implications of further devolution of tax powers for charities, following the publication of the Smith Commission report.
“It is important that there is consistency and clarity and that charities and donors do not lose out as part of the devolution settlement.”
CTG and SCVO have set up a working group to study the implications of different tax rates. Their representatives will meet Treasury officials in December to assess the implications of devolution for gift aid. They will also meet officials from Revenue Scotland and the Office of the Scottish Charity Regulator in early 2015.
Previous discussions following the Calman Commission, a previous commission on devolution which reported in 2009, suggested that the rate of gift aid should not change if Scottish income tax changed. However tax experts believe it is unlikely this could be maintained if the tax levels were vastly different.
