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?