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‘Outdated’ tax regime blamed for charity cash crisis

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The Covid crisis has also impacted on income

Charities are facing a cash crisis with some saying they could see their reserves drained in the next three months.

An “outdated” tax relief and VAT system is adding to pressures caused by the Covid emergency, according to a taxation specialist.

A survey of nearly 200 UK charities has revealed that 55% have suffered a significant drop in their reserves whilst nearly 60% have less than six months cash to cover normal operating expenditure.  As many as a third (30%) have cash to last less than three months.

The survey was undertaken during a webinar hosted by accountancy firm Scott Moncrieff and attended by senior executives and finance management from across a wide range of UK charities.

The UK government recently provided more than £1 billion to support the sector. However, charities that survive into a post-Covid world, face long term structural financial problems in the tax and VAT system.

Scott Craig, partner with Scott Moncrieff and a specialist in VAT in the charity sector, said: “We are very concerned at the financial pressures now affecting a great many charities. 

“Charities are facing the triple whammy of falling reserves and income and the pressures of a tax relief and VAT system that is draining them of resources and compounding their financial problems.  

“Despite successive governments promising to streamline, simplify and consolidate the tax system, there are currently over 1,100 different reliefs. There are about 210,000 charities in the UK, of which around 13% are in Scotland.”

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