Alan Eccles summarises some of the effects of the budget
It would appear that charities will suffer from an unintended consequence tax hit. Perhaps surprisingly, this tax increase on many charities was part of a section in the Chancellor’s speech which considered the Bank Levy. As noted below, it was announced that as of November 2015 Insurance Premium Tax will jump from 6% to 9.5%. As well as the general insurances (public liability etc.) which many charities, third sector, community and not-for-profit organisations will have in place, many of these organisations (as part of their governance and risk systems) will also have taken out a trustee indemnity insurance policy. As a sector the increase could lead to hundreds of thousands of pounds of additional insurance premium tax being paid.
Trustee indemnity insurance and unintended consequence have been linked before. When the Charities and Trustee Investment (Scotland) Act 2005 was enacted, an unintended consequence was that charities would be committing a breach of trustee remuneration rules if that put in place a policy for trustee indemnity insurance. That unintended consequence in the legislation was later amended.
The increase in Insurance Premium Tax could lead to hundreds of thousands of pounds of additional tax being paid
In a previous Budget, a change aimed at reducing tax relief on wealthier individuals making contributions to pensions inadvertently also struck at generous individuals seeking to make donations to charities. The tax relief restriction announced in that Budget speech would have limited amounts that could be given to charity tax efficiently. After that Budget and lobbying from charities groups, that apparent unintended consequence was addressed by removing charitable donations from the tax relief restrictions.
It may be that charities and third-sector groups will seek to lobby to mitigate or reverse the increase in Insurance Premium Tax, where the insured is a charity or third sector organisation.
Research & Development Expenditure Credit: universities and charities
In a clarificatory move, there will be legislation to confirm that universities and charities cannot claim Research & Development Expenditure Credit. University spins-out and subsidiaries will still be able to make such claims.
Charity running costs and charitable purposes: National Living Wage
While the National Living Wage (NLW) may increase costs for charities with employees, there will be an increase in the National Insurance Employment Allowance from £2,000 to £3,000 a year, which may be particularly helpful for smaller charities. Charity running cost was a topic recently highlighted by the Office of the Scottish Charity Regulator.
Of course, while charities may see increases in employment-related costs, many charities will support the concept of the NLW as part of their own charitable purposes, albeit there will be calls in the sector for the level of the NLW to be higher.
Social Investment
While the Budget was quiet on this topic, on Budget day it still seems right to note that we have the first summer of tax incentivised social investment in Scotland with Social Investment Scotland’s Social Investment Tax Relief Community Capital Fund being open. For a little more on social enterprise and social investment (including the Community Capital Fund) read and follow links on our recent blog.
Alan Eccles is a partner specialising in charity law at Brodies Solicitors
