The Budget: Rise in costs cancels benefits: Charities

CHARITIES were last night angrily counting the cost of a budget in which the Chancellor modestly extended the Gift Aid and payroll giving schemes but also significantly increased charities' costs through the extension of VAT to fuel bills, and cut the income they receive from dividends, writes Gail Counsell.

From yesterday, one-off gifts of more than pounds 250 by individuals to charities will qualify for tax relief. At present, under the Gift Aid scheme, gifts must be of more than pounds 400 to attract relief.

The reduction in the threshold means charities will be able to reclaim up to an additional pounds 30m a year from the Inland Revenue.

In addition, the maximum amount that individuals can donate each year under the payroll giving scheme is being raised from pounds 600 to pounds 900 from 6 April. Last year payroll giving raised pounds 11m, of which pounds 3m was tax relief.

Sue Goodman, of the Charities Tax Reform Group, said: 'We are devastated by this budget. It is very disappointing.'

Many charities run homes for the sick and the vulnerable and would find the VAT on fuel a heavy burden, she said. That would more than outweigh the benefits from donation changes.

The 300 charities that belong to the group are expected to spend an extra pounds 27m a year on VAT on fuel, she added.

There was also concern that charities will suffer from changes in the way dividends are taxed.

Many charities have significant share portfolios generating income in the form of dividends. As non-taxpayers, they will be hit by the Chancellor's decision to cut the tax credit on dividends from 25 per cent to 20 per cent.

The switch is to be eased by progressively phasing in the reduction over the next four years. But Andrew Hind, finance director of Barnardo's, the children's charity, said it was a significant blow.

'We have an annual dividend income of around pounds 3m on which we get a tax credit of around pounds 1m. In four years' time we will lose about pounds 200,000 a year. That's what it costs us to run one of our family centres for a year.'