After months of uncertainty and speculation around the Autumn Budget, the overall outcome was relatively benign in terms of policy changes. The measures announced provide a mix of short-term benefits and longer-term headwinds for the economy as a whole and for the charity sector in particular. All of this sits against the backdrop of a sector already struggling with rising cost pressures and limited support from both government and individual donors.
There are, however, some positive developments. A key benefit is the introduction of VAT relief on goods donated by businesses for onward distribution or charitable use. From April 2026 these donations will no longer trigger VAT, removing a barrier that has long discouraged companies from donating unsold goods. Charities engaged in food distribution, poverty relief and similar activities may therefore see a more reliable flow of in-kind donations.
For organisations supporting low-income families, the removal of the two-child benefit cap could ease some operational pressures by providing greater support through the welfare system. An additional, although less direct, benefit arises from the continued freeze of inheritance tax thresholds. As more estates become subject to inheritance tax, this may increase legacy income for some charities. This effect will, however, be tempered by higher taxes elsewhere, which may restrain the sector's ability to raise voluntary income.
Alongside the inheritance tax threshold freeze, income tax thresholds will remain fixed until 2030. Although this raises substantial additional revenue for the government, it drags more taxpayers into higher bands, reducing disposable income and potentially limiting the scope for individual charitable giving. Further tax changes affecting property income, dividends and pension allowances may also affect wealthier donors who typically contribute more significant sums.
At the same time, cost pressures on charities have been intensifying, driven by above-target inflation since 2024. The Budget confirmed a 4.1% rise in the National Living Wage, alongside increases in other wage thresholds from April 2026. These changes will raise employment costs at a time when most charities have limited capacity to absorb them. Rising operational costs are likely to offset much of the benefit provided through the government’s uplift in welfare spending.
Many charities are now struggling to maintain real-terms income, a challenge left largely unaddressed by the Budget. With interest rates expected to fall and operational costs continuing to rise, some organisations may need to consider greater exposure to risk assets in order to achieve adequate returns. This would necessitate revisions to treasury policies and more rigorous due diligence to ensure investment decisions remain prudent and aligned with trustee objectives and the wider charitable mission.
Looking ahead, the priority will be financial resilience. Charities will need to make greater use of in-kind donations, reassess staffing budgets, strengthen governance and diversify income streams wherever possible. The Budget does little to change the direction of travel and the operating environment for charities will remain challenging, with proactive financial planning being essential.
Arlingclose is happy to assist through a variety of treasury management services including investment selection and due diligence, strategy and policy assistance, economic forecasting, and technical accounting assistance. If you would like more information on these services please contact Joe Scott-Soane by emailing jscottsoane@arlingclose.com.
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