Charities - A Briefing For Charitable Organisations - Summer 2011

Editor's comment

Is the way forward clear?

We live in an ever changing world and that is as true for charities as for any other organisation. Without change, there is the threat of stagnation, but too much change gives rise to instability and makes it difficult for us to plan ahead.

Sometimes apparent changes are not what they seem. The Chancellor's announcement of 'big help' for charities is to be welcomed, particularly by those charities suffering from reductions in Government income, be it a sudden cessation or a more gradual erosion. However, looking behind the rhetoric, the changes happening now are quite minor and the proposed consultations which might give rise to more significant changes in the future do not help now. Similarly, the changes to the VAT regime will have limited impacts on most charities. VAT on shared services is a significant barrier which prevents charities working together – unfortunately the only response has been a number of promises to consult on the issue.

Sometimes change doesn't come fast enough: almost five years after the passing of the Charities Act 2006, charitable incorporated organisations are still not available in England and Wales.

But there is some good news. On balance, we welcome the Charity Commission's draft guidance on incorporating ethical considerations into investment policies. And likewise updated guidance on governance, particularly when written in an accessible form, can only benefit the sector.

Adrian Wild

The Chancellor outlined several proposals in his recent Budget speech claiming to provide a 'big help' to charities.

In his second Budget speech the Chancellor, George Osborne, said that he was giving a "big help to the Big Society" and stated "do the right thing for charity, and the Government will do the right thing by you". So we look into the detail of the proposals to see what the Chancellor promises.

A HELPING HAND FOR CHARITIES

By Luke West

Help for the smallest

From April 2013, charities receiving small donations of £10 or less will be able to apply for a gift aid repayment without the need to obtain gift aid declarations from each donor. This scheme is capped to donations totalling £5,000 per annum per charity and charities will need to be recognised by HMRC as having a successful three-year track record of good tax compliance. Further details will be consulted on over the summer. This is a welcome simplification, but it remains to be seen whether the red tape requirements will negate the benefits for most charities.

Help for the biggest

Under current rules, if an individual or company donates more than £10,000 to a charity, the benefit which they can receive from the charity (while preserving tax relief on the donation) is capped at £500.

From April 2011, for individuals and corporate donors, this benefit limit will increase to the smaller of £2,500 or 5% of the donation. We are also promised new guidelines to help clarify what constitutes a 'benefit'.

It is felt that the majority of charities and donors will be unaffected by these changes. However, this change will be particularly beneficial for charities who like to be able to give a 'thank you' of sufficient worth, be it in membership or complimentary tickets, to recognise gifts made by large donors. So a donation of £50,000 could be reciprocated with a benefit worth £2,500 from the charity.

Help to simplify self-assessment

Since 2005 taxpayers completing selfassessment tax returns have been able to direct that a tax repayment may be made to a specific charity of their choice. Such amounts can also qualify for gift aid.

The amount donated to charity by this system is rather low at £400,000 per annum. Indeed, it seems to have cost HMRC approximately £150,000 per annum to operate the system, so the cost-benefit ratio is difficult to justify. There is a further issue in that the system is vulnerable to fraud. The scheme will therefore cease for repayments made after 6 April 2012.

In place of this system, HMRC will utilise the available resources to introduce:

an online claims system for charities to register their details for gift aid and to make gift aid claims. As a first step, HMRC intends to publish four 'intelligent' forms, containing automatic checks to improve the accuracy of completion a supporting electronic gift aid database for gift aid declarations. Help to be consulted on

The Chancellor announced that over the summer consultations would take place on various measures to encourage charitable giving. These include:

reducing the rate of inheritance tax (IHT) from 40% to 36% where someone dies after 5 April 2012 and leaves 10% or more of their wealth to charity (after deducting IHT exemptions, reliefs and the nilrate band) a proposal to encourage donations of pre-eminent works of art or historical objects to the nation in return for a tax reduction. We will await these consultations with great interest in the coming months. CLARITY OR CONFUSION? - A REVIEW OF INVESTMENT GUIDELINES

By Adrian Taylor

The previous guidance on investment (CC14) was set out in the Trustee Act 2000 and a review of the advice in this area is therefore appropriate.

It is important to note that the new guidelines are still in the proposal stage, and the following comments are therefore subject to change once the final version is published. However, it is clear that the Commission is keen to promote greater clarity over how charities can incorporate an ethical stance should they wish it.

While an ethical investment approach has always been respected as part of an investment strategy, many charities have adopted the guidelines that followed the so-called 'Bishop of Oxford' case, where the judgement stated that...