Exclusive - Charities forced to merge

At least six charities are in merger talks because of the loss of £400m in tax breaks on dividends, with at least six more voluntary organisations also considering amalgamations.

The most high-profile link so far happened last week when the HIV/AIDS charity Terrence Higgins Trust agreed to merge with London-based counselling service Red Admiral.

Six other charities have also merged this summer, including the Red Cross which was forced to bring its 79 formerly separate branches in to a single unit. The Institute for the Study of Drug Dependence and the Standing Conference on Drug Abuse are also discussing consolidation, partly blaming the tax changes.

At least six other charities are understood to be considering merging over the next two to three years, with those serving the disabled hit hardest.

Philip Collins, finance director at the Terrence Higgins Trust, said there would be ‘significant savings’ from the Red Admiral link-up . The trust also merged with four local AIDS charities in March this year.

Charity insiders said the moves could signal the start of an increasing trend towards mergers as charities struggle to cope with the burden of irrecoverable VAT, said to have reached £500m a year, more than 5% of charities’ income.

The withdrawal of advance corporation tax relief on charity dividend income has also hit hard and is estimated to have cost the £30bn sector £400m a year.

As part of the current charity tax review, ministers have rejected demands for a VAT refund mechanism and the reinstatement of ACT relief.

‘The tax review is going to lead to many more mergers because there is going to be greater competition for funds,’ said Stephen Burgess, director of Saffery Champness‘ charity unit.

Charity Finance Directors’ Group director Shirley Scott said: ‘Many charities are trying to share services and information because the tax, VAT and human resources issues are changing so quickly.’