Charities & tax avoidance | AccountingWEB

Charities & tax avoidance

Three weeks following the Budget announcement, the PM’s spokesperson justified the decision to put a cap on the amount of tax reliefs available for major donations.

Phillip Fisher warned about this in the immediate aftermath of the Budget, but it has now grown into a guerrilla campaign against the Chancellor following the 50p tax rate controversy, in addition to the ‘pasty’ and ‘granny’ taxes.

According to the number 10 briefing, the government suggested that some wealthy individuals are avoiding paying tax by using ‘bogus’ charities that do little in the way of charitable activity.

Many in the charitable sector have mounted a campaign calling for George Osborne to reverse the decision. A poll showed that nine out of 10 charity bosses think the plans will severely hit donations and as such Cameron signalled a retreat.

Last night the government revealed it is considering whether to make concessions over its plans to cap tax relief on charitable donations, and it turns out that the proposals are more of a moving target in advance of the Finance Bill.

Below we have compiled a collection of comments and responses from the community on the news:

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), said:

‘This note only muddies the waters further. It reinforces our concern that this policy is half-baked at best. Major donors are facing at least six months of confusion and charities are already losing gifts as a result.  The Treasury should act more quickly and drop the proposed cap on gift aid tax relief.’

John Low, chief executive of the Charities Aid Foundation, said:

“We knew the tax changes would be bad, but this confirms our worst fears.  The Treasury talks as if Britain’s most generous charitable donors are simply tax avoiders.

The Government’s handling of this has been shambolic. Far from clarifying matters, it has created further confusion among charities and donors. That’s no way to fulfil its vision of a Big Society.

Treasury officials just have not recognised that there is a world of difference between giving your money away for the public good, and trying to offset tax for private gain.

Charities are facing a tough economic climate in the face of deep cuts in public spending and a squeeze on incomes while tackling increased demand for their services. We need to be encouraging philanthropists to support charities, not treating them as if they are shirking their public duty.”

Matthew Bowcock, chairman of the Community Foundation Network and a member of the Philanthropy Review which made recommendations to Government last year, said:

“Tax relief for charitable giving is not remotely comparable to receiving a tax deduction for a business investment or pension, where there is a prospect of future benefit. Donors don’t become richer by giving to charity as they have to give away their personal assets, usually post-tax assets, to obtain the tax relief.

If major donors decide not to give, or to give less because there is no tax relief available, society may get more tax but donations will be lost. The consequential reduction in giving will place a greater burden on the state as charitable funding to essential charitable organisations is reduced.“

Sue Moore from Baker Tilly said:

“The Budget proposed a cap on income tax reliefs to limit the amount that can be claimed to prevent the wealthy avoiding paying income tax.  The new rules will only affect currently uncapped reliefs and therefore will not impact pension, enterprise investment or venture capital reliefs.  The affected reliefs include losses, interest payment and Gift Aid payments.  The proposed cap on the Gift Aid is £50,000 or, if more, 25% of income.

Despite the myth that a person can reduce their income tax liability to nothing by gifting to charity, the donor has to pay sufficient basic rate tax to cover the charitable gift so their income tax liability cannot be nil.  The government will work with the philanthropy and charity sectors to explore ways to ensure the changes do not significantly impact on charities which rely on large donations so ultimately they should not lose out.

The bigger losers will be those business owners who have taken on large loans to support their businesses. They employ hundreds of people and can only afford to service the loans because of the tax reliefs against other income they receive.  The rules regarding what interest payments are allowed are already strict so why is a cap needed?  Perhaps a more stringent definition on allowable interest would work better.  These same businesses may also be posting losses in the present economic climate and without the relief against other income the owner may just let the business fold.

Many Lloyd’s underwriters are anticipating losses in the next two or three years and if they are unable to relieve those losses in full against their other income they may not be able to survive.  If their loss relief is to be capped at £50,000 or 25% of income then perhaps the taxable profits in a good year should be similarly capped!

If the intention is to prevent relief being claimed for artificial interest payments and losses the legislation should ensure that genuine business owners do not get caught in the net.”

What is your take on the charity tax relief cap put forward?

brendanm's picture

return to socialism

brendanm | | Permalink

I cannot believe these new proposals. This recession is leading the country back to the dark days of the 1970s with anyone who is labelled "rich", or what i would call a wealth creator is being pillared for the current difficulties in the economy. The media is awash with bashing business people, every day, not just bankers, most of whom as far as i can see work hard for a living. If these proposals go through, they will have a damaging effect on the voluntary sector, most of which provides an exceptional value for money service. People know that when they contribute to these enterprises, their money will be spent delivering high quality services. These organisations are accountable to their donators also and if they don't deliver, people certainly won't give their hard earned cash to them. This seams to be part of an ongoing drive to socialism, with business owners or wealthy people who earn alot of money being painted by the left wing media as "tax avoiders". The money still has to be paid, they get tax relief but they still have to write a cheque to the charity, this seams to have been forgotten in the argument. The reality in all this is that its another stealth tax rise, just as the reduction in the higher rate bands, pushing greater numbers of people into 40% tax bands got little or no coverage.

The idea of the government may be to lessen so called avoidance, but the reality is that this will have a damaging impact on charities and the voluntary sector, thus causing hardship on the people these charities are helping - the less fortunate in many instances. How can this be good for society?

As for any reduction in loss provisions, this is another discententive to start a business, when infact they should be trying to enhance the loss provisions as in the case of R & D expenditure. We should be following the american culture where failure is far less frounded apon and even seen as earning your stripes so to speak.

To me these proposals are a continuation of the VAT, tax, and NIC rises already in place, the squeezing of "middle britain" and that all these are measures combined show that far from having "cuts", higher taxes are paying for greater than ever public expenditure.






robertlovell's picture

New Treasury stats in full

robertlovell | | Permalink

This morning HM Treasury released some new figures on super-rich tax avoidance to defend plans to limit the tax relief on charitable donations.

Here's a summary:

  • Nearly one in 10 people earning more than £10m a year is paying less than the 20% basic rate of income tax.
  • 6% of £10m-plus earners paid less than 10% in tax
  • 3% came in below the basic 20% rate
  • Fewer than three-quarters paid more than 40%

Treasury Minister David Gauke told the Today programme:

"We don't think it's entirely fair that the tax system as currently designed does mean that there are some very wealthy individuals who are essentially able to take themselves out of the income tax system,"

He said the balance had to be right so that wealthy people still funded the NHS and armed services.

A Treasury spokesperson said:

“There are currently millionaires paying a lower tax rate than ordinary taxpayers.  This is the system we have at the moment, but the Government is committed to making it fairer.  We’re capping benefits and these figures clearly show why it’s fair to cap tax reliefs for the wealthy as well.”

Here are the full set of figures:




£100k to £150k

£150k to £250k

£250k to £500k

£500k to £1m

£1m to £5m

£5m to £10m

Over £10m

Average tax rates







Above 40%








30% to 40%








20% to 30%








10% to 20%








Under 10%









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