What Does The Budget Mean For Charities? – Charities & Non-Profits – Corporate/Commercial Law
We highlight some of the key considerations for the charity
sector.
Labour revealed its long awaited budget on 30th
October 2024 (read the full budget document). Charities were
mentioned very little in the budget with some in the sector
describing it as a ‘missed opportunity’. Nevertheless,
charity trustees should be aware of the changes, especially when
reviewing their financial projections for the coming years, and
seek help where necessary.
Some of the key changes which will or could affect charities
include:
VAT on private school fees and business rates charitable
relief
As expected, Rachel Reeves announced that the government will be
introducing 20% VAT on private school fees. This includes boarding
services provided for a charge by private schools. The changes will
be implemented from 1st January 2025, although
anti-forestalling measures will apply to some payments made in
advance (including retrospective application from 29th
July 2024).
It was also announced that the government will be removing
business rates charitable rate relief from private schools in
England from April 2025.
This will have significant implications for private schools, and
there is a relatively short time until these changes are
implemented.
It is worth noting that there are some additional provisions and
exemptions which relate to pupils with an Education, Health and
Care Plan (EHCP). For example, local authorities
will be able to reclaim the VAT charged on those pupils’ fees
in some circumstances, where the school is named in the EHCP.
The government estimate these changes will raise £1.8
billion per year by 2029-30. They have stated this source of
funding will help them stay committed to their promises and to
ensure every child has access to high-quality education. The
government states that the impact on the state education system
“is expected to be very small” as a result of these
changes.
Responses to the charity compliance consultation
In the budget, the government announced that they will
“support charitable giving by legislating to prevent abuse of
the charity tax rules, ensuring that only the intended tax relief
is given to charities”. This is in response to the charity
compliance consultation that was launched in April 2023. Read the government’s response here.
The following change will be made in 2025:
- ‘Fit and Proper Persons Test’ –
the definition of who is not a ‘fit and proper person’ will
be extended to include those individuals who persistently fail to
comply with tax obligations. This will include those that fail to
file returns on time.
The following changes will take effect from April 2026:
- Charitable investment rules – there are
currently twelve investment types that are recognised for
charitable tax relief purposes. Currently, only Type 12 (loans and
other investments) need to be made for the benefit of the charity.
From April 2026, all twelve of the investment types will have to be
for the benefit of the charity and not for the avoidance of
tax. - Tainted Charitable Donations Legislation
– this legislation was originally brought in to prevent the
abuse of the tax reliefs to donors and charities. If a donation is
‘tainted’ then the donor is not able to claim tax relief on
it, or on any associated donations. Currently, there are three
conditions that must be met for a donation to be a tainted charity
donation. In the government’s response they say the bar to
challenging a transaction will be lowered. The government will also
be introducing an ‘outcome’ test to replace the current
‘motive’ test. This will allow HMRC to look at a series of
transactions and not just a single transaction. - Attributable income – the government
will be legislating to bring legacy income into the attributable
income definition.
Social housing
The government has pledged a £500 million boost to the
Affordable Homes Programme to assist in building affordable
housing.
A consultation has also been launched regarding a new long-term
social housing rent settlement of 1% above the Consumer Price Index
for 5 years. The government have said they will also consider if
any further measures could be implemented. This is meant to provide
certainty for social housing providers so that the sector has
“confidence to build tens of thousands of new social
homes”.
National insurance contributions
It was announced that national insurance contributions for
employers would increase – a jump from 13.8% to 15%. As a
small comfort, the employment allowance also increases from
£5,000 to £10,500. Despite this good news, the
increased national insurance contributions are likely to squeeze
budgets, especially if a charity employs a lot of staff.
The government announced support for the public sector for
meeting these increased costs, however the voluntary sector was not
mentioned. NCVO and ACEVO leaders have written an open letter to
Rachel Reeves to convey their disappointment at the lack of support
for the voluntary sector, and to clarify whether any support will
be given. Read the letter here.
National living wage
The national living wage will increase to £12.21 per hour
from April 2025, an increase of 6.7%. The government also aims to
remove the bands of pay and create a single adult wage rate. From
April 2025, the national living wage for 18–20-year olds will
be £10 per hour, an increase of 16.3%. While good news, these
increases have the potential to squeeze budgets for employers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
