The chair of the Charity Tax Group has said that the current financial year is likely to be “the most critical in decades” for shaping government policy on the reliefs the sector receives.
In the introduction to CTG’s annual review for 2018/19, John Hemming said that charities could be subject to a mass overhaul of the VAT system whether the UK remains in the EU or leaves with or without a deal.
He said: “This is likely to be the most critical year in decades for shaping charity tax policy. Irrespective of how Brexit is settled, VAT reliefs and rates will come under scrutiny because in Europe the Commission is looking to overhaul the VAT system.
“Even if the UK is no longer tied to the EU’s VAT regime, the UK government will certainly take stock of how it can best use the UK VAT system to achieve its policy goals.
“Initially, policymakers will be looking at the bigger picture but, in preparation for the more detailed scrutiny of the VAT system that will be undertaken over the next couple of years, we need to ensure that we secure the best outcome for charities.”
VAT review
Hemming said the importance of the year ahead made it even more important for charities to support CTG’s review of the VAT reliefs available to charities.
The first part of the project will be undertaken by research consultancy London Economics, which will survey charities to quantify the value of reliefs and exemptions and the level of VAT recovery.
The second stage will then focus on the socio-economic value of reliefs provided to charities and the activity that they are able to undertake as a result.
Speaking to Civil Society News recently, CTG said sufficient funding has been received for stage 1 to proceed, but the organisation is in the process of agreeing the final costs of stage 2 with potential suppliers.
In CTG’s annual review, Hemming said: “Feedback and financial support from charities is essential to enable us to progress this important research which will inform our representations to the Treasury.”
Charity tax commission
Hemming also mentioned the charity tax commission, a review set up by NCVO last year which is expected to publish recommendations for potential reforms to the tax treatment of charities in July.
CTG is a member of the commission’s advisory board and Hemming said it submitted a detailed response to the consultation based on member feedback.
He said CTG called for the charity tax system to be “future-proofed” and for long-term distortions such as irrecoverable VAT to be addressed.
“We emphasised the importance that any proposals reinforce the core principles underpinning charity tax, particularly that the tax system should not discriminate between organisations that are recognised as charities in the various UK jurisdictions and also that donors should not be taxed on money they have given to support charities rather than use for personal benefit,” he added.
Speaking at CTG’s annual conference recently, Nicholas Montagu, who chairs the commission, told charities that the recommendations would look to address “areas where current charitable status leads to odd effects”.
However, Montagu reaffirmed his stance that any changes would have to adhere to a “fiscal neutrality” principle, which he said many charity respondents had ignored.
In his closing remarks he said: “Major solutions are not on our agenda.”
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