Not for profit
Although the Third Sector was not expecting much in the way of direct measures from the emergency Budget, the indirect effects of some of the major Budget changes will hit the sector hard. With a number of recent or ongoing tax related consultations on the charities sector, we expected few, if any, specific measures in this Budget. This turned out to be the case. But we should not underestimate the consequences for the sector from the more wide-ranging Budget moves.
The rise in the rate of VAT from January 2011 will, according to latest estimates, result in the irrecoverable VAT loss to the sector increasing to £1.3 billion. We are likely to see charities taking action during 2010 to mitigate this increase such as accelerating capital expenditure plans.
Whilst the affect on VAT can be estimated, the effect of significant public sector cuts are likely to be far more costly and more difficult to quantify.
The next few years will inevitably be hard on the Third Sector so the best we can probably wish for is just a little misfortune.
In detail
VAT increase is burden on charities
As we predicted, VAT will rise by 2.5% to 20% next year. Although 2.5% is a relatively large increase it will still mean that the UK’s VAT rate is below the average for the European Union. However this will be of little consolation to most charities.
Consultations provide hope for the future
As widely expected there were no measures announced in the emergency Budget specifically aimed at charities although there was a commitment to continue with the consultations on the reform of gift aid, substantial donor rules and the implementation of the EU cost sharing exemption.
Charities and public services – will the cupboard be bare?
A large proportion of charity activity and income derives from the delivery of public services. As central government and local authorities slash their budgets to achieve the required 25% cuts over the next 4 years it is a certainty that charity income will be severely squeezed.