Should the Church Pay Taxes?

Question 09083

Church tax exemption comes up more often now than it did twenty years ago, and the question is usually asked with an edge. Why should religious organisations receive relief that a small business does not? Is a church that accepts favourable treatment from the state compromised by it? Both are fair questions and Christians should be able to answer them without bluster.

Scripture does not address charity law in Britain, so we are reasoning from principles rather than quoting a verse. That is fine, provided we are honest that this is what we are doing. Let me set out what the Bible does say about tax, and then think about how a congregation should hold the arrangements it currently enjoys.

What Jesus Said About Tax

The best known exchange is the trap laid in Matthew 22:15-22. Is it lawful to pay taxes to Caesar or not? Jesus asks whose likeness is on the coin, and gives the answer that has framed Christian thinking ever since: render to Caesar the things that are Caesar’s, and to God the things that are God’s. Civil taxation is legitimate, and paying it is not disloyalty to God.

Less quoted is the temple tax episode in Matthew 17:24-27, which is directly relevant to tax exemption. Jesus asks Peter whether kings take tribute from their sons or from others, and concludes that the sons are free. He then tells Peter to pay it anyway, so as not to give offence. The principle is remarkable. A genuine exemption existed, and He chose not to press it for the sake of the witness.

That episode has shaped my own thinking more than any other. Jesus did not deny the exemption. He declined to insist on it where insisting would put a stumbling block in front of people who were watching.

Paul on Civil Obligation

Paul is equally direct. Because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed (Romans 13:6-7). Written, we should notice, under an emperor whose administration was neither just nor friendly to Christians.

So there is no biblical case for a church withholding tax that is genuinely owed, and no case for treating tax avoidance as shrewd stewardship. A congregation that plays games with its obligations has damaged its testimony in the town for the sake of money, which is a poor exchange by any measure.

What Tax Exemption Actually Means in Britain

It helps to be precise about the arrangements, because the popular picture is inaccurate. In the United Kingdom churches are generally registered charities, and the relief follows from charitable status rather than from religion as such. The same treatment applies to a hospice, a lifeboat institution or a village hall trust.

In practice this means mandatory relief on business rates for places of public religious worship, exemption from corporation tax on income applied to charitable purposes, and Gift Aid, which allows a charity to reclaim the basic rate tax that a donor has already paid on money he has given. Churches still pay VAT on most purchases, still pay employer national insurance, and still pay income tax through PAYE on ministers’ stipends.

That last set of facts is worth knowing when the argument comes up socially. Church tax exemption is narrower than most critics assume, and Gift Aid in particular is not a subsidy at all. It is the return of tax already paid by the giver on money he has chosen to give away.

The Case for Accepting It

Is it right to accept? I think so, for three connected reasons. Charitable relief is granted on the basis of public benefit, and a congregation that runs a food bank, a toddler group, a debt advice service and a funeral ministry is providing exactly that. The relief is not a reward for religiosity but a recognition of service.

Second, the state has an interest in not taxing voluntary association into the ground. A society that made it financially punishing for people to gather for any non commercial purpose would be poorer for it, and the principle extends far beyond churches.

Third, refusing available relief would in most cases simply mean less money for the work. There is no virtue in a congregation paying rates it need not pay and consequently supporting one fewer missionary. Stewardship of the Lord’s money is itself a spiritual duty (1 Corinthians 4:2).

The Case for Holding Tax Exemption Loosely

Now the other side, and I feel its force. Any privilege granted by the state can be withdrawn by the state, and privileges create dependence. Where a church builds a budget that only works with rate relief and Gift Aid, it has quietly handed a lever to somebody outside the congregation.

There is also a pressure that comes with charitable status. Charity regulation increasingly touches questions of what may be taught and how, and a congregation that fears losing its registration may find itself softening on matters where Scripture is clear. If it ever comes to a choice between tax exemption and faithful preaching, the choice must not be difficult.

So my counsel is to receive the relief with gratitude, budget in a way that could survive its loss, and never let it become the reason for anything. The tax position of a church should never appear in a discussion about what the church will say.

The Historic Reasoning Behind the Relief

It is worth knowing where church tax exemption in this country came from, because the history explains the shape of the current arrangements. Relief for religious and charitable purposes long predates modern charity law, and the underlying idea was that property devoted to public worship and public good was not producing private profit and should not be taxed as though it were.

That reasoning has been carried forward into the modern framework, where the test is public benefit rather than religious status. It is a test that churches must actually meet, and the Charity Commission has not hesitated to say so. A congregation that turns entirely inward, serving nobody beyond its own members, is on weaker ground than it may realise when it claims the relief.

I find that a healthy pressure rather than an intrusion. If tax exemption depends on demonstrable service to the public, then a church has an additional reason to open its doors, run the toddler group, host the debt advice service and visit the isolated. Those are things we should be doing regardless, and it does no harm to be reminded.

There is a warning underneath it too. Definitions of public benefit are set by people whose view of what benefits the public may change. A church that has made itself financially dependent on satisfying that definition has taken on a risk, which is why I keep returning to the counsel of holding the relief with an open hand.

Ministers and Their Own Obligations

A word to my fellow ministers, since this is where the personal application usually bites. Stipends are taxable and should be declared in full. Expenses are for expenses. Housing arrangements have specific rules and they should be followed exactly rather than approximately.

I have known men come unstuck here through carelessness rather than dishonesty, and the damage to a congregation’s witness is out of all proportion to the sums involved. Above reproach in 1 Timothy 3:2 includes the tax return. It is a dull application of a great text and it is a real one.

Answering the Critic Fairly

When somebody challenges church tax exemption in conversation, I would resist two responses. Do not act as though the church has a divine right to it, because it does not. And do not become defensive, because defensiveness reads as guilt.

Instead, explain the actual arrangements, describe what your congregation does for the town, and be honest that the relief follows charitable service rather than religious status. Most reasonable people are satisfied by that. Those who are not are usually objecting to the existence of churches rather than to their rates bill, and that is a different conversation altogether, and a more interesting one.

Rendering to God

The second half of the Lord’s answer is the part we skip. Render to Caesar what is Caesar’s, and to God what is God’s. Caesar’s image is on the coin. God’s image is on you (Genesis 1:27). The tax question is small precisely because the claim on the other side is total.

A congregation preoccupied with what it can keep from the taxman while withholding itself from God has understood nothing. A congregation giving itself away in service will find the tax question takes care of itself, and will hold whatever relief it receives with an open hand.

So, now what?

If you are a trustee or treasurer, make sure your church is scrupulous in what it does owe and unembarrassed about what it does not. Get proper advice, keep clean records, and put the relief to work rather than into reserves that serve no purpose.

If you are a member wondering whether all this is compromise, ask a sharper question. Would this congregation still say what Scripture says if the relief were withdrawn tomorrow? If the honest answer is uncertain, the problem is not the tax exemption. Related reading: the church’s relationship to the state and whether churches should be involved in politics.

What would your church have to change if every financial advantage it enjoys disappeared this year, and would the gospel still be preached on Sunday?

Then he said to them, Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.

Matthew 22:21 (ESV)