Charities and the October 2024 Budget

Rachel Reeves introduced her Budget as a national recovery and investment Budget, setting it alongside the reforming Budgets of 1945, 1965 and 1997. The bulk of the £40b additional annual tax raised will come from Employers’ National Insurance, and charities, of course, will pay this cost the same as other employers. There were plenty of other measures published in and alongside the Budget that will affect charities and their work. Here are a few of them.

National Insurance Contributions (NIC)

From April 2025, there will be several changes to employers’ NIC:

• Contribution rate increase: The rate will rise from 13.8% to 15%.
• Threshold drop: The threshold will fall from £9,100 to £5,000. For a charity employing a higher proportion of low wage employees, this will be more costly than the contribution rate increase.
• Employment allowance increase: The allowance will increase from £5,000 to £10,500, providing a small boost for charities with smaller payrolls, reducing their NIC liability.

National Living Wage (NLW)

The government accepted the Low Pay Commission’s recommendations, increasing the NLW by 6.7% to £12.21 per hour from April 2025. There are also substantial increases in National Minimum Wage (NMW) for younger workers and for apprentices. This is good news for workers but will put additional pressure on charity budgets.

Charities will need to review wage structures as they’ll want to preserve pay differentials as their lowest paid workers’ pay increases. They’ll also need to consider whether the additional NI cost can be recovered through increased charges to customers or funders – if not, there’ll be difficult questions for the pay bill.

Additionally, for employees at or just above the NLW/NMW, remember that salary sacrifice may not be possible. Employer charities should take advice if they’re in this situation.

Academy schools

The academy sector will be analysing the announcements aimed at the maintained education sector. The Budget commits to core school budget increases that government says ensure real-term per-pupil funding rises.

£1b of the £2.3b rise goes towards Special Educational Needs and Disabilities (SEND) – a 6% real terms increase. Councils will have discretion on how they spend the cash – some at least will no doubt fund deficits.

£30m is allocated to rolling out breakfast clubs in primary schools.

We understand that DfE will receive “some extra money” to help schools towards the additional NI costs. However, we’ll need to wait until the Spring, to find out how much this will be.

VAT and rates on school fees

As was well trailed, from January 2025, VAT will be applied to private school fees. Key points include:

• VAT will apply to fees for education and boarding.
• Nursery fees, some after-school clubs, and supplies closely related to providing education will remain exempt from VAT.
• Business rates relief for private schools that are charities will be withdrawn from April 2025.

Lobbying of HMRC has brought confirmation that rates relief will remain for special schools, clarification that nursery classes can remain exempt if they mainly comprise under-compulsory school age children, and a commitment to increase Continuity of Education Allowance for military and diplomatic families now paying VAT.

Business rates

The government announced that it intends to introduce permanently lower business rates for retail, hospitality, and leisure properties with a rateable value under £500,000 from 2026-27; the rates will be set in the Autumn 2025 Budget. There’ll be 40% relief to these businesses on their business rates in 2025-26, up to a cash cap of £110,000 per business. For the smallest properties, the small business multiplier will be frozen in 2025-26.

Reliefs for carers

The Carer’s Allowance earnings limit will increase from £139 to £150 per week from April 2025—  so carers will be able to  earn slightly more (just under 8%) while still being eligible for the allowance. An additional £50m has been allocated to local authorities to provide more respite care services. The Budget also includes £20m for training programmes to help carers develop new skills and improve their employment prospects.

Charity compliance and tax reliefs

The Budget also addressed charity tax compliance, focusing on preventing the improper use of charity tax reliefs for personal benefit. This includes:

• Poor compliance with tax compliance – eg, late filing tax returns: HMRC require that a charity’s ‘managers’ (including trustees) be Fit and Proper Persons. The Fit and Proper Person definition will be extended to exclude those who persistently fail to comply with tax obligations. So, if you receive a Notice to file a tax return, tell your accountant! 
• Tainted charitable donations: From April 2026, the legislation will be updated to lower the bar for challenging transactions, allowing HMRC to consider a series of transactions rather than a single one. It will seek to change the test ‘financial advantage’ to ‘financial assistance’ and replace the motive test with an outcome test.
• Qualifying investments: Legislation from April 2026 will ensure that all charity investments must be ‘for the benefit of the charity and not for the avoidance of tax’ – this corrects a weakness in drafting of the rules and means that, for example, an investment in land also needs to pass that test.

Conclusion

The biggest new challenge for most charities and businesses will be planning for the rises in Employers’ National Insurance and National Living Wage. Inheritance Tax and Capital Gains Tax changes may make charitable giving more attractive, bringing opportunities for charities.

Need help?

If you’d like to discuss any of this further, please get in touch with your usual contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Giles Kerkham