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As an organisation, how important is giving to charity for you? It’s about to become a lot easier for companies to be generous, if proposals on charity tax reforms are introduced – adding social value to more companies and attracting candidates who want to help make a difference.

An independent commission has called for a reform of the charity tax relief system - this long overdue reform could save charities an extra £250 million a year. The Charity Tax Commission has made recommendations to HMRC which will aid companies’ generosity and give a well-deserved boost to charities – the proposals include:

Saving charities money – the reform will require businesses to offer Gift Aid from an opt-in to an opt-out scheme this will generate an extra £250 million a year for charities.  

Proposed changes to Gift Aid, whereby HMRC adds 25p to every pound given, could incentivise giving and offer more financial protection to charities and community amateur sports clubs (CASC).

Less paperwork for companies and charities – the launch of a Universal Gift Aid Declaration Database (UGADD) to provide a single declaration to cover all subsequent gifts to charity – cutting the amount of onerous paperwork drastically.

The commission has estimated that £560 million of Gift Aid goes unclaimed every year, which could be improved by decreasing spending on unnecessary admin for both businesses who donate and charities who receive it.

Passive donation – payroll giving schemes being made compulsory for businesses, so employees have the option to give money to charity straight from their pre-tax income. Employees would then opt-out rather than opt-in, which would appeal to passive-givers.

So far, 5,500 employers in the UK offer this scheme and 1 million employees are using it, changes to the scheme would make it compulsory for all businesses to offer it to employees.

VAT reform – simplifying VAT regulations, such as making charities VAT exempt or making the tax easier to claim back for anyone who donates through their company. It is important for any finance professional to know about VAT rules so they don’t end up with any liabilities.

Transparency – encouraging big charities to publish detailed accounts every year about money they receive from tax relief, in order to build public trust and show their openness.

The last time government conducted a comprehensive review of charity taxation was around 20 years ago.

In the digital age, charity tax reforms are due an overhaul as the environment in which the charitable sector operates has dramatically changed. The sector has significantly grown and is now more doing more work in the delivery of public services.

More than we recognise, charities are the ones providing some of our most essential services where businesses might be struggling. Businesses which charities are providing support for include, but are not limited to: housing, legal or advocacy advice, health and social care, and search and rescue. These reforms mean businesses in need will also benefit from helping charities.

The reforms have the potential to improve the social value of companies in all sectors by making it easier for them to donate more. Social value is measured by how a company contributes to society or to the public, including its own employees, who would be given the chance to spend less and give more. Those who add something positive to society are more likely to be happier and therefore healthier – this could make your workforce more productive in the long-term.

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