The charity sector is the most stressed financially, and even with a couple of funding announcements alongside VAT and business rates relief, the measures announced in the Budget do not go far enough to alleviate pressures on cash flows within the sector, putting more pressure on increased donations and fundraising efforts.
The most notable announcements affecting the sector have been outlined below:
Employment taxes
Employment taxes had the most notable mention during the Budget, the announcements of which included, but were not limited to:
- From April 2026, increases to:
- National Living Wage by 4.1% to £12,71
- National Minimum Wage by 8.5% to £10.85
- Income tax and NICs thresholds remain frozen until April 2031
- Fully funded apprenticeships available for under 25s for small and medium-sized businesses.
- Youth Guarantee: Jobs Guarantee scheme – 6-month fully paid work placement for eligible 18–21-year-olds who are on universal credit and have been looking for several months; and
- From April 2029, salary-sacrificed pension contributions above £2,000 per year will no longer be exempt from NICs. Amounts over this threshold will be treated as standard employee contributions and subject to both employer and employee NICs.
Further details on the National Living Wage can be found here.
Whilst there is some positive news with funding available on apprenticeships and job placements, it is expected that the above changes will increase the charity’s cost bases, reducing funding towards charitable activities.
It is also important to remember that whilst changes to pension salary sacrifice were not welcomed, the scheme still offers some tax savings for both employers and employees, albeit it won’t be as generous from April 2029.
VAT
Very little was mentioned for VAT. The only announcement that is expected to impact the sector is the introduction of a new VAT relief for business donations of goods to registered charities, which will come into force on 1 April 2026. The relief aims to be capped at:
- £100 per item for most goods.
- £200 for essential items (e.g., white goods, furniture, computers, mobile devices).
This change aims to encourage charitable giving and enable charities to continue their good work; however, from an initial review of the policy documentation, there are conditions and administrative burdens which are likely to hinder efforts for businesses to support charities, resulting in no significant benefit.
Business rates
Given that Charities and community amateur sports clubs will continue to receive 80% charitable rate relief, with councils retaining discretion on topping up this relief to 100%, the changes announced to permanently lower business rates from 1 April 2026 in the retail, hospitality, and leisure sectors where rateable values are under £500,000 will have little impact on cost savings.
Inheritance tax
It was announced that from 1 April 2026, the IHT exemption for charitable gifts upon death will be limited to registered UK charities and community amateur sports clubs. This change was anticipated following Brexit, and the impact on donations and legacies received by charities is expected to be minimal.
Previous announcements reducing the availability of business property relief and agricultural property relief are still going ahead. The outcome of which may increase charitable giving on death in a bid to reduce donors’ Inheritance tax exposure. Any positive impact will only be seen years down the line.
Personal tax allowances and thresholds
The continued freeze on personal allowances and tax thresholds means more people will pay tax, creating new opportunities for donors to use Gift Aid.
Funding announcements
The government’s funding allocation was public sector-focused, with commitments made by the Chancellor for the following:
- Health Service – £300m allocated to improving patient service
- Education – This sector received a special mention, having a profound impact on the Challancor in a previous life:
- £5m funding to increase the provision of libraries in secondary schools in 2026-27
- £18m allocated to improve and upgrade up to 200 playgrounds across England
- Extending free breakfast clubs and expanding free school meals to children receiving universal credit
- Future plans to reform the special education needs provision – to be announced early 2026.
The funding for schools in particular is limited, but would be welcomed for schools to provide vital services and recreational activities to pupils most in need.
Other points to be aware of:
- Prior to the Budget, the government announced a delay in the mandatory payrolling of benefits (other than loans or accommodation, which are optional) to 6 April 2027, removing the requirement to prepare form P11D’s, resulting in a small cost saving when implemented.
- The government continues to strengthen the charity tax rules on tainted donations, approved investments and non-charitable expenditure, which will take effect from 6 April 2026. We have commented on this previously, but the changes aim to ensure charities retain and use funds for the benefit of the charity by reducing the possibility of any contrived arrangements which are not in the spirit of charity tax relief. The change of which appears to be welcomed by the sector.
If you’d like further information on any of the points mentioned above, please reach out to BHP’s Charities team here.
Join our experts on Thursday, 4 December 2025, for our Budget Seminar and discover what the Budget could mean for you and your business.
