The UK’s departure from the European Union will have significant short, medium and long-term impacts. Katharine Patel, head of the charity & not-for-profit team at Buzzacott, shares her thoughts on how Brexit might impact charities.
The charity sector is very used to dealing with change. Monitoring government regulations and sourcing new funding opportunities are all in a day’s work. The sector is so diverse that, for some, Brexit presents a challenge; for others, it presents an opportunity.
Only a relatively small proportion of charities receive funds managed by the European Commission (for example, the European Regional Development Fund and the European Social Fund), and those that solely depend on these funds are even fewer in number. These grants tend to represent just one income stream among a whole host of other sources.
Rather, it’s the state of the wider economic sphere that we need to watch most closely. If the Brexit process continues to bring fluctuations in the value of the pound, it may deter foreign investors and weaken the UK economy. Where charities rely on income from listed investment portfolios or property, an unstable financial environment could reduce returns and capital growth.
It’s less certain how this could affect the availability of donations from private sources. It is often envisaged that overall charitable giving will fall in line with the state of the economy. However, there is an argument that the rate of charitable giving is relatively inelastic at times of uncertainty. Either way, this brings into focus the increasing need for charities to engage with the general public and the communities they serve, in order to demonstrate the positive impact they generate.
Buzzacott is also monitoring opportunities to reduce the tax burden on charities.
At the moment, charities can access a number of important reliefs such as business rates and Corporation Tax, but high levels of irrecoverable VAT are one of the biggest tax burdens that many charities shoulder. Although no major changes are envisaged, Brexit does provide the UK government with an opportunity to take a fresh look at granting a more favourable VAT position to charities and not-for-profits. These institutions may then find they’re able to recoup a greater proportion of their outgoings.
A specific challenge for some will be the potential restriction that Brexit will place on the movement of labour across borders. For example, healthcare charities often recruit their employees from within the EU and certain educational bodies rely on EU students to boost their income sources. If Brexit introduces restrictions on workers from the continent, it may threaten charities’ abilities to access necessary skills.
But leaving the EU also means we level the playing field when it comes to talent. If organisations can source talent from all over the world, we may start to see more Australian, American and Asian citizens filling vacant positions here in the UK.
Ultimately, charities and not-for-profits are adaptable. Brexit might just offer a greater opportunity for the sector to demonstrate its value to the UK and to thrive.
Many charities and not-for-profits are dealing with complex legislation and increasingly challenging funding environments. We strive to make the difficult job they do as easy as possible by providing comprehensive audit, accounting and tax services. Our advice ranges from governance and strategic oversight to risk management, financial management and internal controls, and HR solutions.
