HMT10 9 March 1999 REVIEW OF CHARITY TAXATION - CONSULTATION DOCUMENT PUBLISHED Proposals to encourage more individuals and businesses to give to charity, and to simplify the tax system for donors and charities, are set out in a consultation document published today as part of the Government's Review of Charity Taxation. In addition, to further encourage gifts from business, Budget 99 extends the number of charitable causes to which they can donate equipment and get tax relief against their profits. Economic Secretary, Patricia Hewitt, said: "We want the tax system to encourage more people to give to charity and to be as simple as possible for donors and charities to operate. There has been a decline in recent years in the number of people giving to charity, particularly amongst the young. We need to create a more dynamic giving environment. This document sets out a range of options for achieving just that." The document contains proposals to: - improve Gift Aid to make it a more accessible means of tax-effective giving by reducing the minimum limit for donations from #250 to #100 and allowing that limit to be reached by instalments - to take effect when the current Millennium Gift Aid scheme finishes at the end of next year; - make the Payroll Giving scheme more flexible by removing the maximum limit for donations and allowing employers to distribute employees' donations directly to charities; - encourage greater take-up of the Payroll Giving scheme through a "kick start" supplement from the public purse to add an extra 10 per cent to donations made over a limited period, backed by a campaign to encourage more employers to set up schemes; - modernise the existing VAT reliefs for charities to make them simpler and more consistent, including the relief for advertising costs; - simplify the tax system for charities, for example, by exempting from direct tax the profits of small charity businesses, extending and aligning the direct and indirect tax reliefs for fund-raising events, and providing a single telephone helpline that charities can ring for advice on all aspects of tax. In addition, to encourage more giving by businesses, the number of good causes to which businesses can donate equipment and get tax relief against their profits is being widened to cover all charitable causes. The necessary legislation will be brought forward in the forthcoming Finance Bill. Inviting responses, Patricia Hewitt added: "We have had an excellent response so far to the Review. Charities have told us many ways in which the tax system, particularly VAT, causes them genuine difficulties. The consultation document we are publishing today gives all interested parties a real opportunity to continue to work with us to help shape future reforms." "We want an active dialogue with charities and look forward to receiving their views and suggestions in this phase of the Review. We will also be carrying out new research into changing attitudes to giving which will help us evaluate responses and put in place a flexible tax system which provides effective incentives to donors." Responses to the document are invited by 31 August 1999. Following evaluation of those responses, and of further research into charitable giving, reforms will then be introduced. Notes For Editors The Review of Charity Taxation was launched in July 1997. During the first phase of open consultation, over 3,000 charities, individuals and interested parties sent in their views on a wide range of subjects. Today's consultation document contains the Government's options for further discussion. Charities already receive over #2 billion of tax reliefs each year, including #1.1 billion relief from direct tax, #200 million relief from VAT and the rest in business rate relief. Charities' income and gains are in general exempt from direct tax provided they are used for charitable purposes. In broad terms, trading income is exempt from direct tax if the trade is carried on as part of the charity's primary purpose or if the work is carried out mainly by the beneficiaries of the charity. Income from certain small-scale fund-raising events is also exempt from direct tax, by concession. There are a number of existing tax incentives to encourage giving to charities: - Gift Aid provides tax relief for individuals and businesses on single cash gifts of at least #250; - Millennium Gift Aid provides tax relief for individuals on cash gifts of at least #100 provided they are made to benefit educational or anti-poverty projects in the world's 80 poorest countries. The amount of #100 may be made up by instalments but must be paid before 31 December 2000; - Payroll Giving provides tax relief for employees on donations made through their pay, up to a limit of #1,200 a year; - Deeds of Covenant provide tax relief for individuals and businesses on regular payments made for a period exceeding three years; - Businesses can get tax relief against their profits for gifts of trading stock and equipment which they sell or use in the course of their business. This can include items such as computers and minibuses. The relief is currently limited to gifts to schools and colleges in the UK and, under changes introduced last year, to gifts for educational and medical purposes in the world's poorest countries. There are also reliefs from Inheritance Tax and Capital Gains Tax for gifts to charity. Charities currently also benefit from a wide range of VAT reliefs on the supplies that they buy, and supplies that they make. For example, charities do not pay VAT on certain advertising services for fund-raising purposes, construction of new buildings for their non-business use and certain building alterations to facilitate disabled people. Charities are also not required to charge VAT on the sale of donated goods, supplies they make in connection with certain fund-raising events and welfare services supplied on a not-for- profit basis. The consultation document is available from: Windy Kwok Inland Revenue Room 108 New Wing Somerset House Strand London WC2R 1LB Fax : 0171 438 7134 E-mail: wkwok.ir.sh@gtnet.gov.uk Telephone : 0171 438 6742/7623 Copies are also available on the Treasury, Inland Revenue and Customs and Excise Internet sites: http://www.hm-treasury.gov.uk http://www.inlandrevenue.gov.uk http://www.hmce.uk A Draft Regulatory Impact Assessment is also available at the above address and on the above Treasury Internet site. HM TREASURY PRESS OFFICE Press enquiries to: 0171 270 5238 Non-media enquiries to: 0171 270 4558 If you have access to the Internet you can find this news release at http://www.hm-treasury.gov.uk. Other Treasury material can also be found at this address. # = pounds sterling