BUDGET PROPOSALS: CHARITIES (Hansard, 14 May 1986)

§ Lord Brabazon of Tara

Yes.

Following is the correspondence referred to above:

Parliamentary Branch

DEPARTMENT OF TRADE AND INDUSTRY

1–19 VICTORIA STREET

LONDON SW1H 0ET

12th May 1986

Dear Lord Barnett,

In response to one of your supplementaries on the Question I answered on charities on 19th April, I promised to write to you about the point raised in a letter to The Times on the same day from Mr John Smith.

The letter was concerned with the proposals in Clause 29 and Schedule 7 of the current Finance Bill. These provisions are aimed at restricting misuse of the tax reliefs for charities. Briefly, the proposals would apply only to a restricted class of charities defined in the Bill as "private indirect" charities. These are charities which are both private"—in the sense that they get more than 25 per cent. of their funds from a narrow range of private sources, and indirect"—in the sense that they do not spend at least 75 per cent. of their receipts on direct charitable works of their own.

Even where the charity is a "private indirect" charity it would continue to get full tax exemption for its taxable income and capital gains if it spent at least 90 per cent. of its receipts on charitable 1267WA activities or grants to other charities (except grants to other private indirect charities). If it spent less than 90 per cent. its exemption would be restricted according to the amount it spent.

The letter to The Times is not quite correct in implying that a private indirect charity would be taxed on its receipts. As the proposals stand in the Finance Bill at present, its receipts generally would be taken into account in considering whether 90 per cent. had been spent—and so how much of its taxable income and gains qualified for relief; but this would not involve taxing receipts which were not otherwise taxable, such as ordinary donations from the public. Receipt of rents would not automatically make a charity "private".

The rules would apply from Budget Day but if the accounting period straddled Budget Day, they would be applied either to the whole period or the part from Budget Day onwards, whichever was more favourable for the charity. This was designed to avoid retrospections.

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I should, however, point out that in speeches last week Treasury Ministers stressed that the Government were anxious to deal with abuse without unnecessarily hampering genuine charitable work. In a Finance Bill debate on Tuesday 6 May, the Economic Secretary to the Treasury said that there had been a number of representations that the proposals, as they stood, were likely to cause difficulty for a number of bona fide charities. He said that these points were being carefully considered, and that steps would be taken to respond to them during the passage of the Finance Bill (House of Commons Hansard, 6 May, col. 81). A copy of the Hansard extract is enclosed.

You also raised a point about the cost of the new reliefs. The Chancellor said in his Budget Speech that the reliefs for charities were estimated to cost £70 million in 1987–88. This includes £10 million for VAT reliefs. The various items are listed in Table 4.1 of the Financial Statement and Budget Report.

Yours sincerely,

(Lord Brabazon of Tara)