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Tax Changes in this Year’s Budget

This month sees the basic rate of income tax set to drop as a result of changes heralded by this year’s budget.  The lower rate, down to 20% from 22% is applicable from the start of the new tax year and is welcomed by the taxpayer.

However, while this is good news for the taxpayer, it was seemingly bad news for charitable organisations that would have lost out on revenue generated by Gift Aid.  The tax paid on one-off donations can be recovered through the Gift Aid scheme, meaning that every pound donated to charity is actually worth £1.28 to them.

As a result of the rate reduction, the donated pound would have had a lower value of £1.25.  However, the chancellor announced a transitional rate for charities, allowing them to benefit from the 2007 rate for a further three years.

While this may not at first seem significant, the 3p drop could have amounted to a loss of more than £90million per year.  With charitable donations predicted to slump as a result of inflation, the credit crunch and recession fears, the 2008/2009 tax year was expected to be tough for the UK’s charities.  The new delay will be worth approximately £300million to charities over the three year period.

This is a welcome announcement for all charities and will, at the very least, allow them an extended period to get used to the new rate.  Taxpayers should remember that gifts to charities can be an efficient way to offset tax, especially inheritance tax, and they will benefit further now they are allowed an extended period of breathing room.

This article has been provided by UK200Group.

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