The sector has given its verdict on the budget, and there is much positive comment, but this is tempered by some disappointment and criticism.

The Chancellor’s budget speech did herald some significant – and in some cases unexpected – changes to the reliefs available for charities and philanthropists.

Key measures announced in the Budget include proposals to simplify Gift Aid, encourage wealthy people to give more to charity, promote the take-up of Community Interest Tax Relief and extend the allowance for passenger payments to include volunteers.

ACEVO: Budget leaves a legacy of better giving
ACEVO welcomed what Osborne announced today as “Big Help for Big Society” through a number of new measures to encourage charitable giving and philanthropy in the UK including major simplification of the Gift Aid system and the reduction of the rate of inheritance tax for those leaving major donations to charities.

Today’s Budget, ACEVO noted, also included a number of other good news items for the third sector including a commitment to save community investment tax relief and an allowance for passenger payments currently in place for business employees, at 5p per passenger mile, which will be extended to volunteers.

ACEVO’s CEO, Sir Stephen Bubb said: “This budget leaves a legacy of better giving for generations to come. But now we need Govenrment to get a grip on local cuts so that today’s generation of charities is still around to benefit tomorrow.”

NCVO: Budget recognises the challenges sector faces
Sir Stuart Etherington, chief executive of NCVO, said: "This Budget demonstrates that the Government recognises the challenging times that the sector is currently facing. The pledges on modernising and simplifying Gift Aid are particularly welcome; these will reform a scheme which is a vital source of income for charities but which we have long argued needs taking into the 21st century.

"The announcement that charities will be allowed to claim Gift Aid on up to £5,000 of small donations per year without the need for Gift Aid declarations will also be a huge benefit in bringing in extra funding and reducing bureaucracy, particularly for small community organisations. NCVO has long been campaigning to extend the scope of Gift Aid to include the full range of gifts that people make."

He added that the NCVO are pleased by the proposal to incentivise philanthropy among wealthy donors; this echoes recommendations made by the Funding Commission report last year and will be a quick way of channelling funds into the sector and encouraging a step change in giving, noted NCVO.

Etherington added: "We also welcome the proposal to extend the allowance for passenger payments to include volunteers, as it rewards people who are doing their bit for the Big Society without putting them out of pocket.

"It is encouraging that the Government is committed to retaining and promoting Community Interest Tax Relief; this helps to stimulate the social investment market and encourages investment in deprived communities."

"All of these measures make a contribution to helping the sector through very tough times; we would also encourage Government to act in a number of other areas including VAT, further extending the Transition Fund and introducing statutory guidance to local authorities to guard against disproportionate cuts."

Philanthropy Review: Welcome the intentions
The Philanthropy Review applauded the Government’s focus on encouraging charitable giving and philanthropy in the Budget.

However, this is only the first step towards building a stronger culture of philanthropy in our country, it noted

It said it welcomed the intentions of the announcement concerning Gift Aid for small cash donations as this indicates that the Government has recognised the need to release these funds to which charities are entitled.

But it was disappointed at the" very modest level" of the threshold up to which Gift Aid can be claimed without the need for Gift Aid declarations.

This means that any charity raising more than £5,000 in small cash donations will miss out.

Adding, to fully understand the benefits to charities of these new measures, we need much more detail on how the individual initiatives will work in practice.

This, the Philanthropy Review, noted particularly applied to the new rate of inheritance tax announced today.

Thomas Hughes-Hallett, chair of the Philanthropy Review board and chief executive of Marie Curie Cancer Care, said: “We are encouraged to see some measures in today’s Budget that represent the first step to building an even stronger culture of philanthropy in the UK.

"But we strongly encourage Government to see this as the first in a series of initiatives to stimulate giving to be rolled out over the life of Parliament.”

IOF: Welcome change to Gift Aid, but avoids sensitive change
According to The Institute of Fundraising, allowing charities to claim new Gift Aid on up to £5,000 of small donations per year is a welcome gift to charities of £1,250 per year, to be received from 2013.

The IOF stated that this bears resemblance to the ‘Gift Aid light’ idea put forward to the Government’s Gift Aid forum by its working party during 2010, which will make a significant difference to charities’ incomes.

Further Gift Aid changes include a modernised system of online filing in 2013, which will also save charities time and money in processing Gift Aid – and, the IOF noted, this is possibly the most significant reform seen in recent years.

The additional measure announced in today’s Budget of increasing the Gift Aid benefit limit from £500 to £2,500 from April 2011 is also applauded by the Institute of Fundraising.

The increase in the Gift Aid benefit limit will enable a more effective stewardship of substantial donors by charities.

This change, however, avoids the sensitive area for charities of Gift Aiding membership fees which can often fall foul of the existing benefits rule.

The Government’s consultation on Income Tax and National Insurance also offers the potential for increased Gift Aid income to charities and is an area the Institute "looks forward to exploring further".

The Institute encourages the Government to consider the implications of Gift Aid and other charity reliefs, and to consult the charity sector to ensure that it doesn’t miss out.

A separate consultation on an appropriate tax relief on gifts in kind is also welcomed.

This is a complex area and the Institute said it "looks forward to working with Government to implement the reliefs".

The announced investigation into Payroll Giving increases is long overdue, and the Institute looks forward to working with Government to drive this agenda further forward.

The introduction of the 10% legacy gift incentive in return for reduction on Inheritance Tax could prove extremely beneficial for charities promoting legacy fundraising.

Commenting on today’s proposals, Lee Grant, head of membership communities, said: “It’s great that charities will directly benefit from today’s budget. The 2013 online system of processing Gift Aid is well overdue and will save both time and money for charities claiming Gift Aid relief.

“Allowing Gift Aid on small donations is a welcome gift for charities, allowing a further £1,250 to be claimed by charities each year.”

CTG: Positive measures
The Charity Tax Group [CTG] also welcomed the number of positive measures announced in today’s Budget that will help charities.

Commenting on the measures, CTG’s chairman, John Hemming said: “The Chancellor described his proposals as a “big help for the big society”.

"It is a clear demonstration that the Government is prepared to listen and take practical steps forward to support the valuable work of charities by encouraging philanthropy and simplifying a number of processes, particularly on Gift Aid. The Government has tackled a number of issues that have concerned the sector for some time.”

CTG particularly welcomed the announcement that Gift Aid will move online and that a charity can claim Gift Aid on donations of £10 or less subject to an annual limit of £5,000.

Although this will help the large number of smaller charities and churches that rely on local collections to support their activities there are a number of practical points that need to be addressed around how the £10 limit will be monitored, for example on loose collections.

Hemming added: “The announcement that HMRC will work with the sector to develop a supporting electronic Gift Aid database is also highly welcome. This is a simplification measure that CTG has been calling for as it will dramatically increase the efficiency of the Gift Aid process”.

Other measures that CTG welcomes include:

The increase to a maximum value of £2,500 in the benefits that individuals and companies can receive in return for making a Gift Aid payment

The proposal that the IHT rate will reduce to 36% on estates where at least 10% of the estate has been left to charity

The proposed consultation on a new scheme to give a tax reduction to those who donate pre-eminent works of art and other historical objects to the nation

The increase in the mileage allowance to 45p and the extension of the £5 passenger allowance to volunteers. This will help many charities do their work.

Although the Budget has many good points, the CTG noted that it is very concerned at the lack of progress on implementing the mandatory cost-sharing exemption that was promised in the last Budget, with no commitment to a date for implementation.

CTG has invested a lot of effort in working with HMRC and the Treasury on who the exemption could work.

The delay in its implementation may mean that a test case goes to the VAT tribunal arguing direct effect.

CFDG: Impact positively on charities
CFDG said it is delighted to see genuine reflection on the involvement of the charity sector in delivering the country’s economic recovery.

In particular CFDG welcome Government listening to calls from the sector in a joint letter instigated by CFDG outlining simplification measures for Gift Aid.

CEO of CFDG, Caron Bradshaw said: “A number of announcements today will impact positively on charities. Given the central role of the sector in delivering growth we are pleased to have seen measures to tackle long-standing issues such as Gift Aid simplification.”

Caron Bradshaw added “Online filing will benefit all, but removing the paper trail up to £5000 worth of donations will be especially supportive for smaller charities that currently struggle to make use of Gift Aid at all. In our 2010 survey 43.2% of respondents said they did not maximise their income through this relief – this measure can only help. This also goes some way to addressing the lack of tax incentives in the Giving Green Paper.”

A rise in income tax allowance, the reduction in fuel duty and the extension in mileage rates to volunteer passengers is good news all round for charities – with funding already strained.

This year’s Budget has an emphasis on cutting red tape and making it easier for SMEs to access new markets.

However, CFDG noted it is important that charities are able to utilise new provisions in the same way, particularly given that the long-term issue of the VAT burden charities face has still been left unaddressed.

CFDG continue to urge Government to make this a priority.

The consultation on the merger of National Insurance and Income Tax was also addressed today by George Osborne, a move CFDG welcome.

Caron Bradshaw added: “It is essential that the Government engage with and listen to the views of the sector during this period of consultation as it will have implications for Gift Aid.”

Given the lack of detail on the sector in last year’s Budget, CFDG are pleased to see that there are a number of specific provisions for charities outlined today.

Most important of all in the philanthropy sector is the announcement that from 6 April 2012 those who donate 10% more of their net estate to charity will receive an inheritance tax break of one tenth.

This will be set out in the Finance Bill 2012 and will be designed in a way to route the benefit to the charity rather than to beneficiaries of the estate.

SCVO: Gift Aid welcome news
Martin Sime, chief executive of the Scottish Council for Voluntary Organisations noted: “Today’s budget certainly doesn’t fix the serious financial difficulties faced by charities and voluntary organisations across Scotland.

"But long awaited reforms to the Gift Aid system are welcome news. A new scheme allowing charities to claim gift aid on small donations up to £5000 without any bureaucratic form filling will be particularly welcome news for smaller charities.”

DSC: Well done Osborne, Cameron & Hurd
DSC’s chief executive Debra Allcock Tyler said: "I say bloody well done to George Osborne, David Cameron, and especially to Nick Hurd. We weren’t expecting the giving rhetoric to translate into the budget and it has. Taken together the proposals to support charitable giving could be more significant than any put forward in any other recent Budget.’

She went on to add: "However, it’s only ‘could’. We hope this isn’t the end of the story on the Giving agenda – the voluntary sector has really engaged in the Government’s recent consultation and much more needs to be done. This is only the starting point, it is most certainly not a case of job done."

Citizens Advice Scotland: Nothing in the budget to help
And Citizens Advice Scotland (CAS) said there is nothing in the budget that will really help people who are struggling financially, and that the government does not understand the extent of the problems many families are facing.

CAS chief executive Lucy McTernan said: “There is nothing in the budget that will seriously relieve the pressure on those who are suffering the most. People are crying out for some kind of financial help, and they did not get it today.

“The government doesn’t seem to realise that many people are finding it difficult just to get through the week. Incomes have fallen as the cost of living has risen. People are really struggling to get by.

"Many can’t meet their mortgage or rent payments, or even feed their families. Personal debt is on the rise and young people in particular are finding it hard to get work. This is the real picture of life for many people in Scotland. CAB advisers see it every day. and it is bleak.

“The government could have responded to this today by introducing measures that would provide something for those who are struggling the most. But in fact there is nothing that will really help people. The minor change to the tax threshold will amount to just 80p per week – barely enough to buy a litre of milk.

“Overall it is clear that the government does not understand the full extent of the financial crisis that afflicts the everyday life of people in Scotland. They need to provide more support for those who need it and re-think the cuts they are making to essential services.”

Withers: Unexpectedly good news for charities
Chris Priestley, a partner in the Charities & Philanthropy team at Withers, commented: “There is some unexpectedly good news for charities – there are some really significant changes here.

"As always, the devil will be in the detail, but there is much for charity fundraisers to mull over and work out how they can maximise the opportunities that have been announced. Only time will tell if Mr Osborne will come to be known as the ‘Charitable Chancellor’.”

Kingston Smith: An incentive to give to charity
Nick Brooks, head of Not-for-Profit at accountants Kingston Smith, commented on inheritance tax and charity, noting that from April 2012, if you leave 10% or more of your estate on death to charity then the rate of inheritance tax on the part of your estate that is chargeable will be reduced from 40% to 36%.

He said: "This is an incentive to give to charity. Overall the heirs will receive less than if no charitable gift had been made, particularly where the estate also benefits from other reliefs such as business property relief and agricultural property relief.

"In many instances it may well be worth looking at the numbers in more detail and considering more tax effective means of giving. With the new reduced rate the effective tax rate on the whole estate (ignoring the nil rate band, currently £325,000) is 32.4%.

"In effect it will cost the beneficiaries £240 to put an extra £1,000 in to the charity. If the beneficiaries are 50% taxpayers it may be better to pay the inheritance tax and claim gift aid relief on donations by the beneficiary. There will also be complications to consider for anyone with an estate that includes exempt assets such as business or agricultural property."

Deloitte: Charities will be losing out
Toby Bushill, a director of tax at Deloitte, said: “It is reassuring that, despite the financial pressures, the Coalition Government remains committed to keeping gift aid - the main tax break for charitable giving – broadly in its current form. The Chancellor announced proposals aimed at simplifying the compliance processes for charities reclaiming the income tax credit on gift aid donations from individuals, including a move to online filing of gift aid claims for 2012-13.

"There will also be a reduction in the paperwork required, from April 2013, for smaller charities on donations of up £10 on donations of up to £5,000 a year per charity.

“What the Chancellor failed to mention, though, is that from 6 April charities will be losing out on £3.21 for every £100 donated by individuals when the supplementary relief for the reduction in the basic rate of tax from 22% to 20% comes to an end. The Government has resisted calls from the charities sector to extend this temporary relief."

Overview

Gift Aid Benefit Limits
For donations to Charities or Community Amateur Sports Clubs to be eligible for gift aid there is a limit to the value of benefits that the donor may receive.

For larger donations, in excess of £10,000, the existing limit of £500 will increase.

For donations of £50,000 or above the new overriding limit of £2,500 will apply.

Between £10,000 and £50,000 the limit will be 5% of the gift. The limits for smaller gifts are unchanged, for gifts up to £100 it is 25% of the donation and above that up to £1,000 it is still £25.

The new limits apply to donations from 6 April 2011 for individuals, 1 April for companies.

This is aimed to help foster a culture of giving by allowing the 5% benefit principle to apply to much larger gifts lifting and loosening the restrictions on charities showing their thanks and appreciation to high-value donors.

Abolished tax reliefs
The Office of Tax Simplification made several suggestions related to charitable tax reliefs earlier in the year, many of which have been followed in the budget. As predicted, the transitional gift aid relief and Millennium Gift Aid will both be abolished. The government has chosen to retain the Community Investment Tax Relief, which will be a relief to the financial bodies making use of this tax break – although there is work to be done in raising awareness of its benefits.

Additional proposals
The government has also committed to exploring how they can increase the take-up of Payroll Giving, although no concrete proposals have been released, and the consultation on a VAT exemption for services shared by VAT-exempt bodies, including charities, will continue.

Impact assessment reports
Starting with the Budget 2011, the government will publish a tax information and impact note (‘TIIN’) for tax policy changes which will, for the first time, include an appraisal of the effects of the changes on civil society organisations. These notes will be published on HMRC and HM Treasury websites whenever substantive changes in tax and National Insurance policy are introduced in future.

The proposals for the merger of NI and Income Tax – although still some way off – will be watched with intent, particularly in relation to their interaction with Gift Aid.

Works of Art
Osborne also announced a consultation on proposals to encourage gifts of works of art and items of historical value which was thought likely by many in the sector. Many in the sector have argued for changes to be made in this area following on from the 2004 Goodison Review and this consultation is very good news.

Tainted Charity Donations
Next month will also bring the introduction of new anti-avoidance rules to replace the onerous and flawed substantial donor rules. The new Tainted Charity Donations rules aim to remove the confusion and unintended consequences of the existing regime.

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