Following Wednesday's Summer Budget announcement, we assess the impact of it on the charity sector. Whilst charities were not directly affected by the Budget, measures such as the introduction of the living wage, changes to housing benefits and tax credits will no doubt be felt by some in the sector.
The national living wage
Some charities have already signed up to paying their staff the London living wage. Staff expenditure is often the main cost for service delivery charities (c.60% of total costs), so this has already had a big impact on additional expenditure requiring to be absorbed. Now, with the introduction of the national living wage for all workers aged over 25, starting at £7.20 per hour from April 2016 and set to reach £9 by 2020, is likely to increase charities wages bills further. This comes at a time when contracts with local authorities are being squeezed, often putting the charities own finances under pressure and forcing them to deliver more services for a similar or smaller contact value in what has become a very competitive environment between providers. This increased expenditure will have to be budgeted for, and comes hot-on-the-heels of pension auto-enrolment – a cost is still to impact upon some smaller charities.
Charities and Research & Development (R&D) tax credits
From 1 August 2015, a charity or university will be ineligible to make a Research & Development Expenditure Credit (RDEC) claim, a tax relief available to large companies. This measure relates to a charity’s own independent research and also for the R&D they carry out as sub-contractors. This is in response to HMRC receiving a number of RDEC claims from universities. HMRC states that the scheme was never intended to be claimed by universities or charities and this measure amends the legislation so that it is in line with the original policy intention.
HMRC estimates that this will affect less than 50 charities and universities who are claiming RDEC’s under the current rules.
Impacted further are those charities which tackle homelessness. With cuts to welfare and 18-21 year olds unable to claim housing benefit automatically, means that more vulnerable young people may be forced into a life of homelessness. This increases the burden on charities which campaign against homelessness, many of which are also social landlords. There is a myriad of issues in this Budget that could affect them, including:
- working age credits to be frozen. With the cost of living increasing, particularly in London, this is bound to impact upon their tenants. The use of food banks has been on a steady increase in 2014 and this can only exacerbate their use;
- rents in social housing are to be reduced by 1% for the next four years. As described above, charities are expected to provide ‘more bang for their buck’ by local authorities when contracts are out for tender. This has put pressure on finances already (without taking into the impact of the new national living wage) and so reducing what may be a key income stream, which will only increase the financial pressure further at a time when there are likely to be more beneficiaries to support.
Should you have any questions, please contact Nick Simkins
or your usual Moore Stephens advisor.