DCH 69 Federation of Small Businesses
MEMORANDUM FROM THE
FEDERATION OF SMALL BUSINESSES
TO THE JOINT COMMITTEE ON
THE
DRAFT CHARITIES BILL
MONDAY 14 JUNE 2004
About the FSB
The FSB represents the interests of
the self-employed and owners of small businesses. Although founded
as recently as 1974 it now has over 185,000 members across all
industries, trades and services. FSB members together employ 1.25
million people.
This memorandum relates solely to the
trading capacity of charity shops.
1. Charity shop benefits
Charity shops enjoy 80 percent relief
from UBR and are not obliged to charge VAT on sale of donated
goods and can offset or reclaim VAT input tax. They are also exempt
from Corporation tax on profits.
1.1 Charity shops appear to be the
business success story in the high street. It is estimated that
there are 6000 charity shops in the UK with a combined turnover
of £400 million.
1.2 This expansion in the number of
charity shops has been largely due to the benefits that they enjoy
over the normal retail outlets. This includes 80 per cent relief
against local authority business rating. The local authority has
discretion to waive the remaining 20 per cent.
1.3 It is estimated that charity shops
raised a record £95 million for good causes last year.
1.4 The cost to government of relief
on charitable properties is estimated to be in the region of £435
million.
1.5 Other benefits enjoyed by charity
shops include those around the VAT system.
1.6 Zero rating of VAT applies to the
goods sold by charity shops when those goods, new or used, are
donated as free gifts.
1.7 In addition they enjoy zero rating
on advertising in newspapers, programmes and posters etc.
1.8 Charity shops can offset or reclaim
all of their VAT input tax on goods and services purchased in
the course of running the shop.
1.9 Money raised from the sale of donated
goods (new or used), is not deemed taxable by the Inland Revenue.
2. Commercial small businesses in the
high street
There are 3.8 million small businesses
in the UK. Over 1.6 million of these operate from business premises
in the high street. Competition in the high street is razor sharp
and small businesses are increasingly noticing a more professional,
aggressive and new goods biased approach to what is on offer in
the charity shop next door.
2.1 Businesses make a significant contribution
to government tax revenues. In 2004/5 receipts for business rates
from 1.6 million businesses are expected to be £19 billion.
(Over 22 million households will pay £18 billion in council
tax for the same period).
2.2 The rates bills of small businesses
expressed as a percentage of business profits are greater than
those for large firms.
2.3 Rates as a percentage of profits
for firms with a turnover of below £100,000 can be as high
as 32 per cent.
2.4 On any survey of small business
burdens the VAT system always scores highly on cost of collection
and payment to Customs & Excise.
3. Taking a hold in the high street
The number of charity shops grew rapidly
in the early 1990s, ironically boosted in part by the recession,
which left many shops otherwise empty.
3.1 The first charity shop was established
in 1947 by Oxfam, and today it has over 760 shops (which is about
the same number as Dixons and Currys combined) with a profit last
year of £17 million.
3.2 These shops are increasingly employing
paid staff at the expense of volunteers.
3.3 These shops are also increasingly
on prime sites within the high street.
3.4 Shelter according to the Times
is in the process of re-branding its 98 shops while the British
Heart Foundation has recently developed a number of up-market
"concept" shops specialising in furniture. The Salvation
Army, which has a store just off Oxford Street in London, is going
down the specialist route selling new retro clothing.
3.5 Some fifteen charity retailers
now have more than 100 shops.
About the FSB's concerns
The FSB has over the years, received
complaints from commercial retailer members that the tax breaks
that charity shops enjoy, represent unfair competition. Commercial
retailers concerns about the tax breaks are based around the increasing
tendency of the charity shops to sell brand new goods. Commercial
retailers in the catering sector are noticing coffee stores being
opened up by the charity sector.
Stephen Alambritis
Head of Parliamentary Affairs
Federation of Small Businesses
2 Catherine Place SW1E 6HF
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