When I started this thread I wanted to consider the relationship between charities and the Council, particularly the effects of the number of charity shops on the high street. However, I felt I could not do this justice without considering the tax and financial advantages given to charities, in more detail. Sorry about that !
Charities are good things ..... right ?
Probably .... but... it depends....maybe.
How does a charity spend its money
I would hope that most of the money raised by a charity is spent on its "primary purpose". I believe this usually does not involve a conventional charity shop although a charity might have a "trading" primary purpose:
https://www.charitytaxgroup.org.uk/tax/income-corporate-taxes/trading/806-2/
By way of example, the aims and activities of our very own Compton Care are set out on the Charity Commission website as:
"To relieve and provide palliative care to persons principally resident in Wolverhampton, Dudley, Sandwell and Walsall and the counties of Staffordshire and Shropshire who are suffering from cancer, lymphoedema or terminal illness. To provide education and training for healthcare professionals and others, including volunteers, who are involved in providing palliative care."
Its charitable objects are then set out as:
"TO RELIEVE PERSONS PRINCIPALLY RESIDENT IN WOLVERHAMPTON DUDLEY SANDWELL AND WALSALL AND THE COUNTIES OF STAFFORDSHIRE SHROPSHIRE AND HEREFORD AND WORCESTER WHO ARE SUFFERING FROM CANCER, LYMPHOEDEMA OR TERMINAL ILLNESS."
https://beta.charitycommission.gov.uk/charity-details?regid=512387&subid=0
Bureaucracy:
There have been media comments about the costs of bureaucracy within a charity and some comments about the overall number of charities and the duplication of primary purposes. Comments are welcome.
Highly paid executives:
There has also been some disquiet about high salaries paid to certain charity executives.
https://moneyweek.com/merryns-blog/stop-gift-aid-to-charities-that-dont-deserve-it
"Reserves":
At 31 March 2019, our own Compton Care is shown as having:
£5.8m own use assets
£9.7m long term investments
£5.4m other assets
(£1.3m) total liabilities
Some might question why a charity has "long term investments"
Charities are good things ..... right ?
Probably .... but... it depends....maybe.
How does a charity spend its money
I would hope that most of the money raised by a charity is spent on its "primary purpose". I believe this usually does not involve a conventional charity shop although a charity might have a "trading" primary purpose:
https://www.charitytaxgroup.org.uk/tax/income-corporate-taxes/trading/806-2/
By way of example, the aims and activities of our very own Compton Care are set out on the Charity Commission website as:
"To relieve and provide palliative care to persons principally resident in Wolverhampton, Dudley, Sandwell and Walsall and the counties of Staffordshire and Shropshire who are suffering from cancer, lymphoedema or terminal illness. To provide education and training for healthcare professionals and others, including volunteers, who are involved in providing palliative care."
Its charitable objects are then set out as:
"TO RELIEVE PERSONS PRINCIPALLY RESIDENT IN WOLVERHAMPTON DUDLEY SANDWELL AND WALSALL AND THE COUNTIES OF STAFFORDSHIRE SHROPSHIRE AND HEREFORD AND WORCESTER WHO ARE SUFFERING FROM CANCER, LYMPHOEDEMA OR TERMINAL ILLNESS."
https://beta.charitycommission.gov.uk/charity-details?regid=512387&subid=0
Bureaucracy:
There have been media comments about the costs of bureaucracy within a charity and some comments about the overall number of charities and the duplication of primary purposes. Comments are welcome.
Highly paid executives:
There has also been some disquiet about high salaries paid to certain charity executives.
https://moneyweek.com/merryns-blog/stop-gift-aid-to-charities-that-dont-deserve-it
"Reserves":
At 31 March 2019, our own Compton Care is shown as having:
£5.8m own use assets
£9.7m long term investments
£5.4m other assets
(£1.3m) total liabilities
Some might question why a charity has "long term investments"
https://moneyweek.com/517222/why-are-charities-not-spending-the-money-theyve-raised
Gift Aid on donations
For the most part, charities rely on donations from you and from me. Our donations often qualify for "gift aid". This enables the charity to reclaim some tax and can allow us, as donors, a degree of tax relief. However, it costs a higher-rate income tax paying donor, less money to make a gift to charity than a basic rate or non-taxpaying donor.
This is what it costs various taxpayers to make a £100 gift to a charity:
£100 someone who pays no Income Tax - £0 paid by the Government
£ 80 a basic rate (20%) taxpayer - £20 paid by the Government
£ 60 a higher rate (40%) taxpayer - £40 paid by the Government
£ 55 an additional rate (45%) taxpayer - £45 paid by the Government
An additional rate taxpayer is someone whose taxable income is above £150,000 pa. Is it fair that someone with the highest income, receives the greatest Government subsidy ..... you decide.
As a matter of interest, on the above figures the way it works is that each taxpayer pays the charity £80. The charity can then reclaim £20 basic rate Income Tax from the Government. Higher Rate and Additional Rate taxpayers claim the balance of their tax relief in their Self Assessment Tax Return (or maybe in a more informal way). Basic Rate Taxpayers have nothing further to pay. Non-taxpayers may reimburse £20 to the Government but, probably should not have filled in a Gift Aid form in the first place.
Simple or what.
Donations need not be in cash. For example, when you take your unwanted stuff to a charity for it to sell in its shop, you might be asked to "gift aid" it. The above principles would then apply to the value of the stuff, and the charity would need to keep good records to link each donor with his/her stuff.
There is also tax relief for donations by limited companies, although the rules are slightly different.
There are also other complications, but I won't go into them here.
I understand that, for the year 2018/2019 the total amount of tax reliefs to charities is estimated at £3.79bn.
That's a lot of money.
https://www.gov.uk/government/statistics/uk-charity-tax-relief-statistics-commentary
Trading Charities
Gift Aid on donations
For the most part, charities rely on donations from you and from me. Our donations often qualify for "gift aid". This enables the charity to reclaim some tax and can allow us, as donors, a degree of tax relief. However, it costs a higher-rate income tax paying donor, less money to make a gift to charity than a basic rate or non-taxpaying donor.
This is what it costs various taxpayers to make a £100 gift to a charity:
£100 someone who pays no Income Tax - £0 paid by the Government
£ 80 a basic rate (20%) taxpayer - £20 paid by the Government
£ 60 a higher rate (40%) taxpayer - £40 paid by the Government
£ 55 an additional rate (45%) taxpayer - £45 paid by the Government
An additional rate taxpayer is someone whose taxable income is above £150,000 pa. Is it fair that someone with the highest income, receives the greatest Government subsidy ..... you decide.
As a matter of interest, on the above figures the way it works is that each taxpayer pays the charity £80. The charity can then reclaim £20 basic rate Income Tax from the Government. Higher Rate and Additional Rate taxpayers claim the balance of their tax relief in their Self Assessment Tax Return (or maybe in a more informal way). Basic Rate Taxpayers have nothing further to pay. Non-taxpayers may reimburse £20 to the Government but, probably should not have filled in a Gift Aid form in the first place.
Simple or what.
Donations need not be in cash. For example, when you take your unwanted stuff to a charity for it to sell in its shop, you might be asked to "gift aid" it. The above principles would then apply to the value of the stuff, and the charity would need to keep good records to link each donor with his/her stuff.
There is also tax relief for donations by limited companies, although the rules are slightly different.
There are also other complications, but I won't go into them here.
I understand that, for the year 2018/2019 the total amount of tax reliefs to charities is estimated at £3.79bn.
That's a lot of money.
https://www.gov.uk/government/statistics/uk-charity-tax-relief-statistics-commentary
Trading Charities
Some charities "trade" as part of their primary purpose.
https://www.charitytaxgroup.org.uk/tax/income-corporate-taxes/trading/806-2/
Other than this, why would a charity want to trade ?
In order to sell the stuff it receives from donors or maybe just to make more money, I hear you say.
There are a number of ways a charity might trade. Perhaps the most common is the "charity shop" which, in particular, might be set up so that the the charity can sell the "stuff" which is donated to it. What's wrong with that I hear you ask. Maybe nothing, I reply. The donors get rid of their unwanted second hand stuff. The shoppers get something they want, at a very reasonable price. In the middle, the charity makes some money for it to spend on its good causes and the rubbish which might otherwise go to landfill is reduced.
What's not to like ?
I suppose that would depend on how many "normal" traders the charity either puts out of business, or displaces from their existing premises or maybe even dissuades from starting up in the first place. Take a look at how many charity shops there are, particularly in our city centre. Please see charity shops comment below.
Many charities are big business.
My concern is that the substantial tax and financial benefits provided to charities are a form of state aid which enables them to unfairly compete against normal businesses.
https://www.telegraph.co.uk/news/politics/12183741/Curb-the-number-of-inefficient-charity-shops-that-clog-up-our-high-streets-say-charity-campaigners.html
Volunteers
Volunteering to work for a charity is commendable, particularly if the work is in connection with the charity's primary purpose. However, if the volunteering work is in connection with the charity's trading entity, maybe it is less commendable if it further enables the charity to unfairly compete against normal businesses and may be responsible for putting paid workers out of work.
I believe that many of the volunteers are pensioners. By definition they too are "state aided".
Also, I am not sure it is fair that some charity workers are paid and some are not.. For example it doesn't seem right that unpaid, state sponsored volunteers should help fund highly paid executives.
However, for the volunteers, that is a matter of personal choice.
What do YOU think ?
Business Rates
I understand that a charity is entitled to an 80% discount on its business rates and maybe 100% at the discretion of the local authority.
https://www.wolverhampton.gov.uk/business/business-rates/mandatory-and-charitable-rate-relief
However, for tax avoidance reasons, I believe that many charities set up a separate limited company in order to carry out their trading activities. I then understand that some cash strapped local authorities have been seeking full business rates on properties occupied by those companies.
This seems fair to me.
What do you think ?
https://www.civilsociety.co.uk/news/councils-trying-to-charge-charity-shops-full-business-rates.html
Value Added Tax
Charities also receive some VAT concessions.
https://www.taxadvisermagazine.com/article/vat-charities
Capital Gains Tax & Inheritance Tax
Charities also receive relief from Capital Gains Tax and wealthy donors to charities receive some relief from Inheritance Tax.
https://www.charitytaxgroup.org.uk/tax/capital-gains-tax/relief-for-charities/
https://www.moneyadviceservice.org.uk/en/articles/the-tax-benefits-of-giving-to-charity
How many charity shops in Wolverhampton City Centre
At some point I might have a walk around Wolverhampton City centre, which I might define as inside the ring road, and make a list of all of the charity shops. If you have a spare hour or two, please feel free to have a look for yourself.
However, I'm wondering how much in business rates is being "lost" because normal businesses (ie those businesses which would be liable to pay full business rates) have been displaced.
Don't take my word for it. Have a look at what the Guardian had to say.
https://www.theguardian.com/voluntary-sector-network/2017/sep/11/charity-shops-vital-volunteers-sign-high-street-decline
Has the number of charity shops in our city centre has had the effect of reducing the number of "normal" businesses ?
What do you think ?
Wolverhampton City Council
Maybe our council planners are in a difficult position. If a landlord approaches them and says that the only "business" which is prepared to pay rent, is a charity shop what do the planners do. Do the planners say "OK then" - and accept lower business rates or do the planners apply pressure for the landlord to get a "normal" tenant who pays proper business rates. Maybe the landlord might not be too happy with this as a tenant who pays proper business rates might look to pay a lower rent.
Do the planners limit the number of city centre charity shops ?
Comments on this would be appreciated.
Summary
I do not believe it is the intention of Parliament that charities should compete against normal businesses whilst, at the same time, charities receive significant taxpayer support.
Either a charity should keep its privileged tax status or it competes - not both. What do YOU think.
Overall, I believe this is a subject which is deserving of further research.
https://www.charitytaxgroup.org.uk/tax/income-corporate-taxes/trading/806-2/
Other than this, why would a charity want to trade ?
In order to sell the stuff it receives from donors or maybe just to make more money, I hear you say.
There are a number of ways a charity might trade. Perhaps the most common is the "charity shop" which, in particular, might be set up so that the the charity can sell the "stuff" which is donated to it. What's wrong with that I hear you ask. Maybe nothing, I reply. The donors get rid of their unwanted second hand stuff. The shoppers get something they want, at a very reasonable price. In the middle, the charity makes some money for it to spend on its good causes and the rubbish which might otherwise go to landfill is reduced.
What's not to like ?
I suppose that would depend on how many "normal" traders the charity either puts out of business, or displaces from their existing premises or maybe even dissuades from starting up in the first place. Take a look at how many charity shops there are, particularly in our city centre. Please see charity shops comment below.
Many charities are big business.
My concern is that the substantial tax and financial benefits provided to charities are a form of state aid which enables them to unfairly compete against normal businesses.
https://www.telegraph.co.uk/news/politics/12183741/Curb-the-number-of-inefficient-charity-shops-that-clog-up-our-high-streets-say-charity-campaigners.html
For example, charities receive an 80% discount on their business rates. Sometimes they receive a bigger discount. Business rates help to provide services to the local community via the local authority. Who is responsible for the decision to divert money away from the local community into the coffers of the charities - which may or may not be local.
The Charity Commission has published its guidance to assist charities, including their trading structure and tax planning
Volunteers
Volunteering to work for a charity is commendable, particularly if the work is in connection with the charity's primary purpose. However, if the volunteering work is in connection with the charity's trading entity, maybe it is less commendable if it further enables the charity to unfairly compete against normal businesses and may be responsible for putting paid workers out of work.
I believe that many of the volunteers are pensioners. By definition they too are "state aided".
Also, I am not sure it is fair that some charity workers are paid and some are not.. For example it doesn't seem right that unpaid, state sponsored volunteers should help fund highly paid executives.
However, for the volunteers, that is a matter of personal choice.
What do YOU think ?
Business Rates
I understand that a charity is entitled to an 80% discount on its business rates and maybe 100% at the discretion of the local authority.
https://www.wolverhampton.gov.uk/business/business-rates/mandatory-and-charitable-rate-relief
However, for tax avoidance reasons, I believe that many charities set up a separate limited company in order to carry out their trading activities. I then understand that some cash strapped local authorities have been seeking full business rates on properties occupied by those companies.
This seems fair to me.
What do you think ?
https://www.civilsociety.co.uk/news/councils-trying-to-charge-charity-shops-full-business-rates.html
Value Added Tax
Charities also receive some VAT concessions.
https://www.taxadvisermagazine.com/article/vat-charities
Capital Gains Tax & Inheritance Tax
Charities also receive relief from Capital Gains Tax and wealthy donors to charities receive some relief from Inheritance Tax.
https://www.charitytaxgroup.org.uk/tax/capital-gains-tax/relief-for-charities/
https://www.moneyadviceservice.org.uk/en/articles/the-tax-benefits-of-giving-to-charity
How many charity shops in Wolverhampton City Centre
At some point I might have a walk around Wolverhampton City centre, which I might define as inside the ring road, and make a list of all of the charity shops. If you have a spare hour or two, please feel free to have a look for yourself.
However, I'm wondering how much in business rates is being "lost" because normal businesses (ie those businesses which would be liable to pay full business rates) have been displaced.
Don't take my word for it. Have a look at what the Guardian had to say.
https://www.theguardian.com/voluntary-sector-network/2017/sep/11/charity-shops-vital-volunteers-sign-high-street-decline
Has the number of charity shops in our city centre has had the effect of reducing the number of "normal" businesses ?
What do you think ?
Wolverhampton City Council
Maybe our council planners are in a difficult position. If a landlord approaches them and says that the only "business" which is prepared to pay rent, is a charity shop what do the planners do. Do the planners say "OK then" - and accept lower business rates or do the planners apply pressure for the landlord to get a "normal" tenant who pays proper business rates. Maybe the landlord might not be too happy with this as a tenant who pays proper business rates might look to pay a lower rent.
Do the planners limit the number of city centre charity shops ?
Comments on this would be appreciated.
Summary
I do not believe it is the intention of Parliament that charities should compete against normal businesses whilst, at the same time, charities receive significant taxpayer support.
Either a charity should keep its privileged tax status or it competes - not both. What do YOU think.
Overall, I believe this is a subject which is deserving of further research.
For more detailed notes on charity shops please see: https://charityretailshops.blogspot.com
Comments are welcome, as always.
Coronavirus - update
Many charity shops might have to close because many of their volunteers (those who are elderly) are having to go into self-isolation. However, it may be that the Government would have closed the shop anyway, to encourage everyone to stay at home.
There is a then call for a guarantee scheme for charities in order to replace lost cash flow.
https://docs.google.com/document/d/10Ugevw4Lm6kXRZ_mLFfXqxu1FR3Rwj_4A1M3rmE5f4Y/edit?usp=drivesdk
This would, of course, be in addition to the significant tax adantages they already receive - which was put at £3.79bn for the year 2018/2019 - as mentioned above.
It seems to me that it is time for a parliamentary enquiry so as, at the very least, to set out some ground rules for charities.
Coronavirus - further update
The Chancellor has announced a £750m support package for certain charities
https://www.insidehousing.co.uk/news/news/chancellor-announces-750m-support-package-for-charities-during-coronavirus-crisis-66037
Comments are welcome, as always.
Coronavirus - update
Many charity shops might have to close because many of their volunteers (those who are elderly) are having to go into self-isolation. However, it may be that the Government would have closed the shop anyway, to encourage everyone to stay at home.
There is a then call for a guarantee scheme for charities in order to replace lost cash flow.
https://docs.google.com/document/d/10Ugevw4Lm6kXRZ_mLFfXqxu1FR3Rwj_4A1M3rmE5f4Y/edit?usp=drivesdk
This would, of course, be in addition to the significant tax adantages they already receive - which was put at £3.79bn for the year 2018/2019 - as mentioned above.
It seems to me that it is time for a parliamentary enquiry so as, at the very least, to set out some ground rules for charities.
Coronavirus - further update
The Chancellor has announced a £750m support package for certain charities
https://www.insidehousing.co.uk/news/news/chancellor-announces-750m-support-package-for-charities-during-coronavirus-crisis-66037
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