TaxPersonal TaxComment – Not for the fainthearted

Comment - Not for the fainthearted

The voluntary sector's tax affairs are an administrative nightmare, held together by the combination of the Charity Commission and FICO, explains Sir Peter Kemp.

Charities are big business. There are over 300,000 of them. Accordingeld together by the combination of the Charity Commission and FICO, explains Sir Peter Kemp. to the Charity Commission, they raise something like #16bn per annum, and that excludes the value of the voluntary workers.

All these sums by definition go to purposes that society requires. If these amounts were raised by compulsory taxes rather than voluntarily, they would add some 8p to income tax.

The business is an amazing one. It is not for the faint-hearted or the tidy-minded. Nobody really knows what a charity is; its definition depends on a judgment made in the Courts many years ago which is still standing. Classically it is the relief of poverty, the advancement of education, the advancement of religion and – the catch-all – ‘other purposes beneficial to the community’ (but note, not political party funding).

The origin of tax concessions, put at something like #1bn per annum, are again lost in the mists of time, and their logic is doubtful. And the administration is a jungle; we have the commission which is supposed to regulate, but does not look after every charity, and we have the delightfully-named FICO – the Financial Intermediaries and Claims Office – in the Inland Revenue which looks after the tax affairs of every-one, whether or not on the commission’s books.

FICO can call for accounts and reports from charities in situations where the commission does not want or need to, and conversely the commission has rules which call for reports and accounts which FICO never wants to know about.

And of course, there are problems from time to time. There are straight frauds and swindles. There are charities which spend too much on so-called administrative costs and not on the purpose for which they were set up.

There are always the doubtful cases – for example, Eton College – on the one hand and weird religious sects on the other.

So when we read, in ‘Charities clarified’ (14 May, page 10), that the commission, presumably with the agreement if not instruction of ministers, is looking at aspects of this whole business, the bureaucratically minded may feel it timely. There may be some areas and oddities that could be improved without damaging the whole. But it is important not to get too heavy.

The voluntary sector is an enormously important part of our social and economic structure. It fills a vital gap between public and private provision But it is by its nature independent and self-willed, and does not take kindly to officious policies of nannying and tidying up.

It’s not broke so why fix it. The best policy any government can have is one of benign tolerance and encouragement.

Sir Peter Kemp is chief executive of the Foundation for Accountancy and Financial Management.

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