Funding news

Emergency Budget reveals changes in VAT - 23 June 2010

The emergency budget, announced yesterday, revealed a number of changes regarding VAT and charities.

As a result of the emergency budget announced yesterday, changes will be taking place regarding the level of VAT paid by voluntary sector organisations. This expected to have significant effects on how charities pay VAT and recover tax paid in donations. The key points to highlight so far include:

  • Increase in VAT to 20% from April 2011 - charities will have to spend at least £140m more a year, bringing the annual level of irrecoverable tax to now be as high as £1.5bn.
  • Increase in capital gains tax could encourage more high earners to donate cash - the increase in CGT from 18 to 28 per cent for higher-rate taxpayers could encourage them to give land, shares and property to charities in order to avoid paying the tax. On the reverse, that revenue from Gift Aid will be hit by the £1,000 increase in the personal income tax allowance, meaning that any donations from the estimated 880,000 people who will no longer pay income tax will not be eligible for Gift Aid.
  • Government will consult on VAT exemption for charities that share back-office functions - The government has pledged to carry out a formal consultation this autumn into providing a VAT exemption for charities that share back-office functions. Also high on the agenda for consultation include more substantial donor legislation and Gift Aid.

For further information on these highlights, visit the Third Sector website.