What does the Government’s new Growth Plan mean for charities?

What does the Government’s new Growth Plan mean for charities?

Whatever your views on the Chancellor’s new Growth Plan, there’s no doubt that its impact on charities has raised concerns across the Third Sector. Some organisations are calling for the Government to do more to champion philanthropy amongst the nation’s top 1% of earners, whilst many are worried about a future drop in Gift Aid, at a time when charities are still battling with the effects of the pandemic and the soaring cost of living.

What will happen to Gift Aid?

At the moment, Gift Aid (based on the current rate of basic rate income tax at 20%) enables charities to claim on eligible donations at the rate of 25p for every £1 received. This means for every £10 donated under Gift Aid, the value of the gift to the charitable body will be £12.50.

The Government’s decision to cut the basic rate of tax to 19% from April 2024 will have a knock-on effect for Gift Aid with the amount that charities can reclaim on eligible donations dropping to 23p for every £1 of donation received. For many organisations, this represents a significant reduction in their annual income.

Under the current plans, charities will be protected from this cut in Gift Aid, temporarily. As part of a three-year transition period, beginning in 6 April 2024 and lasting until 5 April 2027, Gift Aid will still be linked to a basic rate of 20%, which some say could prevent the sector from missing out on as much as £90 million per annum.

What about Additional Rate Taxpayers?

Despite the doom and gloom, perhaps there could also be some good news from this announcement. As of next April, the top 1% of earners’ highest tax rate will be 40% instead of 45% which, for many, will equate to several thousand pounds in income. However, we are already seeing philanthropy at its finest, with some supporters pledging to gift any additional money that they receive through the tax cut to charity. This tax cut also presents fundraisers with an opportunity to engage their HNW supporters and secure gifts without causing any financial ‘pain’ for the donor.

Beyond 2027

“There’s no doubt that the three-year transition period will give charities a chance to take stock and plan for what happens beyond 2027”, says Gifted’s Chief Executive, Amy Stevens. “But, we still need to see the details of the relief scheme in the forthcoming Finance Bill and consider what this means for the Third Sector going forward.”