Autumn Budget 2024 – Charities – points you might have missed

In the lead-up to the Budget, there was a lot of discussion around the proposed application of VAT on school fees, and this measure was indeed confirmed by the Chancellor. VAT will apply to fees from 1 January 2025, and business rates relief for private schools which are charities will be withdrawn from April 2025. These measures will impact the many charitable independent schools in the UK.

Aside from those two key headline-grabbing measures, the government also announced its intention to strengthen existing charity tax rules from April 2026, ‘to prevent abuse and ensure that only the intended tax relief is given to charities.’ This follows on from the previous government’s consultation in April 2023 on charities’ tax compliance, to which this government has now responded.

A number of the measures the government wants to introduce are aimed at preventing abuse of the current rules and the changes should not, if implemented effectively, adversely impact on the vast majority of charities and their donors. However, there were three aspects in the proposals which we were particularly interested to see:

• HMRC intends to introduce measures targeting charities which do not file tax returns when they are required to do so.  As charities benefit from tax reliefs, they may not always realise that they are required to file a tax return when they receive a notice to do so, or they may lack the resources or know-how to complete a return.   Nonetheless, the intention is to clamp down on non-compliance.
  
  The government proposes to do this by changing existing rules so that, if a manager (including a trustee) of a charity persistently fails to comply with the charity’s tax obligations, they will not be considered a ‘Fit and Proper Person’ and will need to be removed from the charity. As a charity’s managers must be deemed ‘Fit and Proper Persons’ in order for the charity to qualify as a charity for tax purposes, this may ultimately result in the withdrawal of tax reliefs for the charity. We will keep these proposals under review and the government has said it will share its proposed changes in draft with sector representatives and seek their views before making the changes during 2025.
• A small point buried in the government’s responses is that it is ‘considering developing an interactive guidance tool for donors, to help them understand the most effective means of donating.’ It will be interesting to see how ambitious this tool is, and how helpful it is for donors, and the type of donors it is aimed at.
• The government is also considering developing an interactive guidance tool for charities, to support them to understand their compliance obligations. Again, it will be interesting to see how this develops, and if it will prove a useful resource for charities without professional support. 

There were some other announcements in the Budget which will have a particular impact on charities, although not relating exclusively to them. In particular:

• For charities with employees, key points will be the increases, from April 2025, in employers’ National Insurance Contributions (NIC) (from 13.8% to 15%) and the National Living Wage (up by 6.7% to £12.21 per hour). Some charities, for example in the care sector, have expressed concerns about the serious the cost impact this is likely to have for them.
• Measures pledging additional funding for social care (£600 million), social housing (£500 million) and SEND education (£1 billion) could have a positive impact on charities operating in those sectors.
• Funding for science and innovation, which is particularly relevant to universities, is to include £6.1 billion for core research, £2.7 billion for association to EU research programmes and ‘support for the commercialisation of university research with at least £40 million over 5 years for spin‑outs proof‑of‑concept funding.’

Finally, the Charity Commission is due to receive an uplift to its budget, from £27.9 million in 2024/25 to £29.4 million in 2025/26. For any charities and trustees who have been in contact with the Charity Commission and experienced its lengthening response times and felt the impact of its stretched backlogs – this additional funding can only be good news.