Charities awaiting news on the effects of Brexit

Charities shouldn't be affected by Brexit as much as other Scottish sectors. Picture: Jane Barlow

Charity law and regulation are matters which have remained largely within the control of the UK and Scottish parliaments, with little interference from Europe. As a result, there are no major upsets on the legal or regulatory front for charities expected in the immediate term as a result of Brexit. So what, if anything, will change for charities post-Brexit?

Stock markets and the value of sterling

It is obviously too early to say what the lasting impact may be of upsets in the value of sterling. But any lasting downward trend would clearly affect investment portfolios and be keenly felt by many charities, particularly endowment funds and grant makers who rely on investment returns to fund their activities.

Charity tax

As a result of European case law, charities in the EU are eligible for relief from UK taxes and devolved Scottish taxes, provided the necessary conditions are met. Similarly, tax relief is afforded to Scottish charities in other EU states. These mutual rights are also extended to Norway, Iceland and Liechtenstein given their membership of the European Economic Area (EEA).

Unless there can be an agreement with the EU or with individual EU member states, Scottish charities will no longer automatically qualify for tax relief in EU states in the event of a Brexit. Equally, EU charities will only qualify for tax relief in the UK or in Scotland if Parliament or the Scottish Parliament keeps the current rules in place.

If membership of the EEA were the outcome of Brexit negotiations, the chances are that these mutual charity tax reliefs would continue.

EU grant funding

Some charities have expressed the fear that EU funding routes, including the European Social Fund, will now be closed to them. This is a real risk.

In theory, it remains possible for the EU to make grants to non-member states., and it would be possible for this principle to be extended more widely to all of the EU’s funding programmes. There is no certainty this will be forthcoming.

Irrecoverable VAT

One tax which charities can almost never totally avoid is VAT. The UK’s VAT system is closely aligned with equivalent taxes imposed in other EU member states. One effect of this is that the UK has limited powers to relieve charities of the burden of irrecoverable VAT on expenditure incurred. Brexit will afford an opportunity to Westminster to amend the VAT system to grant charities relief from VAT.

Other policy areas

A number of charities have been concerned about the loss of some EU protections and policies which UK charities presently benefit from.

A key example is in relation to environmental protection and conservation, where the UK has benefited from co-ordinated EU-wide policies covering wildlife and fish stocks, water and air quality, energy and pollution. The existence of EU-wide standards often underpins project work carried out by environmental and conservation charities.

Scottish independence?

In the lead-up to the 2014 vote, a number of English-based grant-makers put Scottish funding on hold until after the referendum. If there is a second referendum, these issues are likely to arise again.

• Gavin McEwan is partner and head of charities at Turcan Connell