NICVA responds to Consultation on Non-Domestic Rating Policy
We believe that all charities should continue to be exempt from paying rates as the public benefit derived from the work of charities far outweighs the potential revenue.
In our response we have focused on the questions most relevant to our sector: 10, 10a, 10b, and 10c.
Question 10 - What changes (if any) should be made to the current level of 100% non-domestic exemption?
This charitable exemption is the largest tax relief available to charities and is vital for their continuing work. At a time when charities are continuing to receive less and less public funding there is a real risk that the additional burden of a rates bill could force many charities to close.
There is a focus on the financial profile of charities in Northern Ireland with the aim of assessing whether it would be possible for some organisations to make some contribution (20%) to the overall rating burden. Although 20% of registered charities operate with an income of more than £200,000, the money generated by these charities is used to further their charitable aims. Any contribution that must be made towards rates will take away from the delivery of services for public benefit.
The impact of a rates bill, at any level, will obviously vary across charities. In engaging with our membership we and the Charity Retail Association, have amassed a range of examples of the impact of the imposition of a rates bill, this evidence is used to support our arguments throughout this document.
One such example comes from the Community Rescue Service (CRS) who receive no public funding for their work supporting the police with their statutory responsibilities for the safety of the general public. They are specialists in crisis intervention, lowland rural and urban search and rescue, swift water rescue, community support and education. CRS operate one charity shop and have four bases in which they can store equipment donated by a landlord. They estimate the impact of 20% rates on their properties to be around £4,500. For this charity this is the equivalent of:
- 3 years of servicing the 4x4 Land Rovers and other vehicles which move search personnel into remote areas
- 4 years of insurance cover for volunteers and their equipment to keep them safe during searches
- 5 volunteers being trained and fully equipped with dry suits, life jackets, helmets etc. for flood relief work, swift water searches
- 10 new all-terrain off road bikes to speed up searches on tracks and paths
- 20 sets of full uniform and PPE to equip volunteers to safely perform searches day or night
- 45 high power LED torches to aid night time searches and searches of derelict buildings
Question 10a - Should a reduced exemption or cap apply to those organisations competing with commercial interests?
The consultation paper states that it could be argued it is appropriate and affordable for organisations that ‘compete with commercial interests’ to make a contribution to rates.
This definition would include charity shops and nurseries. The model employed by the voluntary and community sector is entirely different than the one used by the private sector, whilst these may be seen as ‘commercial’ undertakings any surplus generated is used to fund the organisation’s charitable purposes.
The voluntary and community sector is increasingly being advised by government that it must explore ways in which to become more sustainable and reduce what is seen as dependency on government grants and project funding through creating social enterprises and other income generating ventures. Many organisations have heeded this guidance and diversified their funding and it is now being suggested this might be unfair competition.
There is an assertion within the consultation document that charity shops lead to a reduction in the overall retail mix. It should also be stated that charity shops are not the cause of the economic downturn of our highstreets but a symptom. Charity shops mainly sell second hand items (diverting over 21,000 tonnes of textile from landfill) and, again, all of the money made is used to contribute funds to the organisation’s overall charitable purposes.
Furthermore, encouraging growth in social capital through the work of charities and voluntary organisations can only help foster economic growth. Charity shops often undertake other functions which bring additional footfall to the high street by holding events and competitions.
In some towns charity shops offer the only shops of their type, for example in Derry Concern Worldwide offer the only dedicated charity book shop, there is no national book retailer, an obvious addition to the retail mix of the city.
It should also be noted that charity shops are not taking leases on properties to the detriment of commercial interests or start-ups as there is currently a high number of vacant properties in Northern Ireland. A Springboard survey in 2015 showed that NI has the highest shop vacancy rate in the UK at 17.3%.
Charity shops also provide other important functions in Northern Ireland including providing employment and volunteering opportunities. These would be at risk should a rates burden be placed upon them. Research carried out by the Charity Retail Association on the Northern Ireland Charity Retail Sector found that this sector in NI provides:
- 692 jobs
- 5,407 volunteer posts
Question 10b - Should all charity shops pay some rates?
No. As stated above charity shops fulfil a very different role to their commercial counterparts. Providing important volunteering opportunities, promoting brand/campaign awareness, additional services and important information. Cancer Research UK state that their shops are a valuable route to provide health information to the general public.
The impact of a rates bill on charity shops could lead to many being forced to close. The Charity Retail Association’s research on the charity retail sector here found that a 100% rates bill would lead to some charities closing all of their shops, this included Oxfam Ireland. Action Cancer stated they would be forced to close 55% of their shops. They also found at 100% rates the surpluses raised from their shops by charities would be reduced by up to 50%.
This research also showed that paying rates at 20% would have a significant impact on the number of charity shops in Northern Ireland and their ability to make a surplus. Of those surveyed it was expected that with a 20% rates bill an average 20% of shops would close. Worst affected were the British Heart Foundation who would be forced to close 50% of their shops, Barnardo’s estimated they would have to close a quarter of their shops.
A 20% rates bill would impact on the surplus of those surveyed by between 3 and 20%. The impact on employment and volunteering opportunities was up to a reduction of 52% of jobs and 44% of volunteering places for some charities.
Other charities reported that an increased rates contribution would lead to a reduction in services. For example Action Cancer found that 325 breast cancer screenings would be reduced from their target, a significant impact on their service provision.
Question 10c - Should charities have their relief capped so that they do not take over expensive properties simply to help the owner avoid empty property rates?
We have seen no evidence that this is a significant problem in Northern Ireland and feel that any such activity could and should be tackled in a more appropriate manner. NICVA would be happy to support the department in exploring options to deal with this issue if there is compelling evidence that this is a significant issue. It is a disproportionate response to penalise the entire sector through a change of legislation if enforcement avenues have not been explored. For example, the Charity Commission could republish guidelines for registered charities to ensure they are not falling foul of the current law.
There is also a genuine risk that this could act as a disincentive to well-intended Landlords from providing property or land to charitable organisations as a donation in kind. There is evidence of this occurring to organisations within the sector who utilise the property and/or land for use in carrying out their charitable purposes and could not operate without it.
NICVA's Centre for Economic Empowerment commissioned a research report on Land Value Tax for Northern Ireland in 2014 which makes the case for Northern Ireland to consider introducing it as an alternative to the current rating system. This report is available on our website via this link: http://www.nicva.org/resource/land-value-tax-northern-ireland
Land Value Tax (LVT) is a levy charged on land, rather than physical property. It recovers the socially created value of land and speculative gains on land prices, which drives real estate bubbles. Additionally a LVT could create an incentive to develop land to its fullest potential use, because the same charge would be levied irrespective of whether the site is abandoned or put to productive use.
The concept of a LVT has recently gained increased traction. In Scotland the Commission for Local Tax Reform has proposed the LVT as a potential model to replace Council Tax. In Dublin the Economic and Social Research Institute has called for the local property tax to be replaced by a site valuation tax.
NICVA would urge the Executive to consider LVT as an alternative and/or at the very least, carry out a land valuation to consider how much revenue could be collected.
The imposition of a rates bill on charities, at any level, would be a damaging step.
The impact of even a 20% rates bill on a charity of any size, would have a significant detrimental influence on their ability to reinvest surplus in their important work.
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