The Budget and Charities

The Budget and Charities

The Chancellor’s Autumn Budget 2021 focused on the Government’s plans to create a “new economy, post Covid-19”, and the creation of a high skill and high wage economy. But were there any specific measures for charities?

Those of you receiving this email should also have received our general Autumn Budget Summary 2021 which outlines all the measures introduced. Charities will no doubt welcome the increase in public spending and some help for the lowest paid in society, although some of this will be offset by increases in the cost of living and the likelihood that there will be greater demands on the third sector in the future.

Charities made a great contribution to the nation’s response to the pandemic, and many received additional funding. Indeed the Kreston Charities Covid-19 survey report published earlier this year indicated that many charities were emerging from the pandemic in a strong financial position, albeit recognising that there were challenges ahead.

There was some good news for cultural charities such as museums, orchestras and theatres. For obvious reasons these charities have been very significantly affected by the pandemic.

Cultural charities have been helped in recent years by tax credit schemes which help them generate tax refunds to help fund their activities, although their lack of activity in the pandemic has reduced the tax credits they are able to claim.

The Chancellor has announced a doubling of tax credits that cultural charities can claim through to April 2023, with tapering down after that date, returning to current levels by April 2024.

The Museums and Galleries Education Tax Relief has been extended from April 2022 through to March 2024.

A further £850m has also been committed to help museums, galleries, libraries and local culture.

The topic of business rates has been in the news for some time. The announcement of a 50% discount for retail is likely to be good news for charities which run shops.

Charities involved with overseas activities will no doubt be pleased to see that foreign aid expenditure is projected to return to 0.7% of GDP by 2024/25.

The increase in the National Living Wage to £9.50 per hour from April 2022 will be welcomed by charities whose beneficiaries include the lower paid, as around 2 million lower paid workers will benefit. The impact of this increase will also affect charities’ own cost structures, particularly as it is a sector where wages are generally lower than the public and private sectors. Not only will it affect those currently earning the National Living Wage, but there may be ongoing pressures on salaries generally. This may come from individuals earning just above the minimum level who may see their ‘differential’ compared to the lowest paid being eroded, and who may therefore feel that they should also have an increase. This also comes on top of the increases in national insurance announced earlier in the year.

So, there is some good news for charities, but no doubt many will be disappointed that there was nothing to help improve the efficiency of the Gift Aid system or deal with the complexity of VAT for charities. Indeed there is little sign that the topic of charities suffering the cost of VAT will be addressed any time soon.

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Mike Farwell | Partner

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The information in this newsletter must not be relied on as giving sufficient advice in any specific case.