Tinkering with taxes, missing the point

April 01, 1999

Gordon Brown MP, presented his third substantive Budget speech on March 9, with the consequent Finance Bill now proceeding through Parliament. Along with it came the long awaited but ultimately disappointing review of charity taxation.

CHARITABLE GIVING

Accompanying the Budget, the government issued its long awaited consultation document on possible changes to charity taxation, but made two changes immediately:

– extending existing relief from Corporation Tax on gifts of equipment and trading stock to all charities, not just education

– reintroducing relief from Corporation Tax for secondments to schools and colleges, which became time-expired in 1997 after an initial ten year trial.

In addition, pools betting duty was again cut, in the face of on-going competition from the National Lottery, in return for the pools companies continued support for the Foundation for Sport and the Arts and the Football Trust (worth more than ?10 million).

However the cut in the basic rate of income tax by one percent from 23% will cost charities an estimated £100 million in reduced tax refunds. So the voluntary sector is hoping for a major boost from the tax law review. Comments on the consultation are required by August 31. Among ideas put forward relevant to companies are:

– reducing the Gift Aid minimum from £250 to £100 and allowing that to be reached by instalments;

– lifting the current £1,200 maximum annual donation under payroll giving, and floating the idea of an extra 10% subsidy to kick start a giving campaign; allowing employers to distribute employees’ gifts directly to a limited range of charities, without going through an agency.

ENVIRONMENT

The government intends to implement last year’s report on ‘green’ taxes and other economic instruments, prepared by British Airways chairman and former CBI President, Lord Marshall. The main initiatives are:

– a revenue-neutral climate change levy on business use of energy, offset by reductions in employers’ National Insurance contributions; details to be announced next year, with a start in April 2001;

– increased road fuel duty, changes to Road Tax and company car rules to penalise bigger, more polluting vehicles;

– exempting cycles provided by employers from benefit in kind rules, also covering cycle parking facilities;

– likewise exempting free or low cost bus services, including subsidies to local bus companies, from benefit in kind rules

– immediate increase in Landfill Tax from £7 to £10 per tonne, with automatic annual escalator of £1; recycling added to possible beneficiaries of the tax credit scheme

SUPPORT FOR SMALL FIRMS

a new small business service, promised funds worth ?100 million over three years, to promote the interests of small firms within government and pioneer new services, such as Internet tax returns and a payroll facility

– a new Corporation Tax band of 10% for profits up to £10,000, expected to benefit 270,000 small firms, with the normal small firms rate set at 20% and the main rate at 30%

– quarterly instead of monthly PAYE returns for more small businesses

– regional venture capital funds and a promise of a tax incentive next year for large companies to invest in innovative small firms

EMPLOYEES

consultation on a new tax-free share ownership scheme, provided all employees can join

– individual learning accounts to promote life long learning, with ?150 in public subsidy when employees contribute ?25; employer contributions to be tax and National Insurance free, even when not directly work related; part funded by withdrawal of existing vocational training reliefs

– loan of computer equipment to employees to be tax free

– computer learning centres linking businesses, colleges and schools in inner city communities, as part of the University for Industry

– a £60 a week wage subsidy for over-50s returning to work after at least six months unemployment

Comment

In macro terms, the Budget did little to threaten expectations among the pundits for an economic `soft landing’, avoiding a major recession. Profitability in some industry sectors is clearly suffering, but overall the threat of a major down-turn leading to cuts in community budgets seems remote.

Gordon Brown’s main attention has been in tinkering with the detail. The collection of interesting but modest plans on the green agenda, for employee involvement and to support small business should have an impact over time on the social and environmental issues addressed through corporate responsibility programmes.

His tinkering on tax reliefs for corporate giving are indeed welcome, but – as examined in detail in the `trends’ section below – they fail to address the fundamental problem. One restores a relief which no one noticed had expired two years ago. The in-kind giving relief deals with Corporation Tax but not VAT, which is the major disincentive. The Charity Tax Review is wholly complacent about the impact complexity really has on corporate giving, presumably out of ignorance. Companies have three months to get their act together and make a submission, not for their own sakes but to maximise the resources available for community causes.

Corporate Citizenship Briefing, issue no: 45 – April, 1999

COMMENT:

In macro terms, the Budget did little to threaten expectations among the pundits for an economic `soft landing’, avoiding a major recession.

In macro terms, the Budget did little to threaten expectations among the pundits for an economic `soft landing’, avoiding a major recession. Profitability in some industry sectors is clearly suffering, but overall the threat of a major down-turn leading to cuts in community budgets seems remote.

Gordon Brown’s main attention has been in tinkering with the detail. The collection of interesting but modest plans on the green agenda, for employee involvement and to support small business should have an impact over time on the social and environmental issues addressed through corporate responsibility programmes.

His tinkering on tax reliefs for corporate giving are indeed welcome, but – as examined in detail in the `trends’ section below – they fail to address the fundamental problem. One restores a relief which no one noticed had expired two years ago. The in-kind giving relief deals with Corporation Tax but not VAT, which is the major disincentive. The Charity Tax Review is wholly complacent about the impact complexity really has on corporate giving, presumably out of ignorance. Companies have three months to get their act together and make a submission, not for their own sakes but to maximise the resources available for community causes.

Corporate Citizenship Briefing, issue no: 45 – April, 1999

COMMENTS