What, if anything, is actually going to change for charities in the immediate future?
Stock markets and the value of sterling
It is obviously too early to say what the lasting impact may be. But any lasting downward trend which did transpire would clearly affect investment portfolios and would be keenly felt by many charities, particularly endowment funds and grant makers who rely on investment returns to fund their activities.
As a result of European Case Law, charities within the EU are eligible for relief from UK taxes and devolved Scottish taxes, provided that 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.
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, assuming that a full Brexit is effected. Equally, EU charities will only qualify for tax relief in the UK or (for devolved taxes) in Scotland if Parliament or the Scottish Parliament, as the case may be, decides to keep the current rules in place.
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. In March 2016, for example, the EU gave a substantial grant towards development work in Sri Lanka, and it would be possible for this principle to be extended more widely to all of the EU’s funding programmes. This would need a deliberate decision by the EU and, despite the theoretical possibility, there is no certainty that this will be forthcoming.
One of the taxes 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 the Westminster Parliament to amend the VAT system in order to grant charities relief from VAT. This is entirely dependent upon future government policy.
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 coordinated EU-wide policies covering wildlife and fish stocks, water and air quality, energy and pollution. The existence of those EU-wide standards often underpins project work carried out by environmental and conservation charities. Any change in environmental or conservation policy post-Brexit would require the UK deliberately to depart from existing EU standards: it is entirely possible for the UK government to continue to align itself with those standards and again this is dependent upon future government policy.