The most recent budget was predicated on the belief on the belief that the private sector can do more to fill the gap. With strong arguments, the best training, Arts & Business believes the most enterprising organisations will flourish, but others will not.
Arts & Business has identified five main issues within the Budget of June 22 that could have an impact on the development of private sector support of the arts. We will be working closely alongside our cultural and commercial partners and the DCMS and Treasury to make sure we collectively use the current incentives effectively and also identify the best tax options to encourage further contributions from the private sector.
1. Gift Aid
Despite much recent debate on both the simplification of the current Gift Aid regime and the possible replacement of higher rate relief with a Composite Rate, the Budget contained only one brief comment on the subject: “2.103 The Government will continue to explore with voluntary sector representatives ways to improve the Gift Aid system and encourage charitable giving.”
As a member of both the Treasury’s Gift Aid Forum and the Charity Tax Group, Arts & Business welcomes this further debate but also looks to reach a conclusion. As it stands, Arts & Business concurs with the need to simplify Gift Aid but is concerned that the introduction of a Composite Rate would not be in the interests of those who support the arts. Arts & Business is determined that further debate will result in a consensus within the charitable sector on the appropriate way forward but also recognises that at some point this debate must come to an end and change implemented.
2. Substantial Donors
Arts & Business welcomes the new government’s commitment to review and replace the current rules governing Substantial Donors (those who give £25,000 in any one year or £150,000 over six years). Whilst it is in everyone’s interests to prevent the perpetration of fraud under the banner of philanthropy, the Substantial Donor legislation was widely seen as an excessive measure for what was a fairly narrow problem. Sadly little was changed in the last review of this legislation, which happened only 2 years ago.
Arts & Business would welcome new legislation that, within its measures to eliminate fraud, more actively supported and celebrated major donors in the UK.
3. Higher Rate Tax
One of the more curious anomalies in philanthropy is that whilst high rates of tax may reduce disposable income and discourage potential donors from moving to a country, giving is generally made more attractive by the increased value of the available tax relief.
Given this, and that the current Government are retaining the 50% tax rate for the highest earners, Arts & Business will develop a programme of activity over the coming months to help arts organisations improve awareness among their Higher Rate donors of how to claim available tax break equivalent to 37.5% of their donation. [assuming tax break referred to is Gift Aid and donor pays tax at 50%]
4. Capital Gains Tax
The gift of assets such as shares, buildings or land is already one of the most tax efficient ways in which a donor can support a charity. The efficiency comes from the fact that the donor can offset the value of the asset given against their income before tax is calculated and there is no Capital Gains Tax (CGT) due on the gift. By increasing the headline rate of CGT from 18% to 28%, the Government have made this form of giving even more attractive.
Arts & Business will take steps to ensure that cultural charities are aware of the tax treatment applicable to gift of assets works so that they can inform their donors as to the most tax efficient means of giving. Alongside this, we will continue to work with others to encourage the Government to include works of art in the list of assets that qualify for this relief.
5. VAT
Following a European ruling on the supply of goods by voluntary not-for-profit organisations, some arts charities are no longer registered for VAT. For these organisations, the increase in VAT will represent a significant increase in their costs over and above inflation at a time when their public funding is likely to be cut.
However, Arts & Business certainly welcomes the commitment in the Budget to discussing how charities can take advantage of the EU cost sharing exemption when sharing services. It is likely that one of the outcomes of the upcoming period of reduced public funding is that arts charities will try to mitigate some of the reduction by merging back office functions with other arts charities. Adopting the exemption will go some way to improving the cost effectiveness of such a move.