"I want us to mark the Millenium in the best way, by making the year 2000 the giving year." the Chancellor said in his budget speech. "Instead of charity seen in the old way - the rich bestowing favours on the poor - I want a democracy of giving, where all those who can help all those who can't."
Charities currently receive around pounds 2bn of tax reliefs each year, including pounds 1.1bn relief from direct tax, pounds 200m from VAT and the rest in business rate relief. In 1997, British people gave pounds 3bn to charitable causes, but the amount is declining each year.
In his speech the Chancellor said the government planned to reduce the minimum limit of its Gift Aid scheme that attracts tax relief at the basic rate to pounds 100 from pounds 250. The move extends last year's experimental change which lowered the threshold for certain Third World charities to all charities, national and international. Under the review's' proposal, Gift Aid payments can also be made in instalments.
"It's a tremendous boost because it means you can commit to a charity at just over eight pounds a month and it will attract tax relief without the necessity of signing a covenant," said Stephen Burgess, charities director with accounting firm Saffrery Champness.
The YMCA welcomed the move but pointed out that it received most of its funding from donors who simply can not afford to give as much as pounds 100. "It would be even better if there was tax relief across the board on charitable giving." the YMCA said in a statement.
The review also proposed to boost the government's charity payroll scheme, by which employees are given tax relief on donations made through their pay, up to a limit of pounds 1,200 a year. It is proposed that the limit is scrapped and that government will give an extra ten per cent to donations and launch a government campaign for more employers to join the scheme. Currently only one per cent of employers have a pay-roll giving scheme because of the administrative problems involved. The government also wants to simplify the process for employers.
Lastly, the government proposed a number of measures to simplify the tax system for charities, for example by exempting from direct tax the profits of small charity businesses, and by setting up a charity tax advice helpline. Some charities expressed disappointment that not more was proposed to relieve their VAT burden which, despite various exemption schemes, still costs them an estimated pounds 400 million a year. The review makes some proposals to simplify VAT-relief systems in place but no major initiatives were announced.
Charities have been waiting for the government to publish its review on charities taxation for almost a year. More than 3,000 charities responded to the initial stage of the review and now have until 31 August to give their response on the document published yesterday.