Share

Revelations about tax relief cap 'get worse and worse'

Kevin Russell, vice chair of Charity Tax Group and technical director at Stewardship
News

Revelations about tax relief cap 'get worse and worse' 1

Finance | Tania Mason | 5 Apr 2012

The proposed cap on tax reliefs create a “huge disincentive” for anyone to give more than a quarter of their income to charity, and so is effectively a tax on giving, according to the vice-chair of Charity Tax Group.

Kevin Russell, who is also technical director at Christian donor advised fund Stewardship, says that the more detail that emerges about the policy, the worse it gets.

He said that one item of confusion that was cleared up by the clarification note published by the Treasury on Tuesday is that gifts above £40,000 will be potentially caught by the cap, rather than those above £50,000 as many in the sector had assumed.  This is because it is the gross gift that is subject to the cap, not the net gift.  

“So it’s actually slightly worse than we thought,” Russell said.

Penalty for giving more than 25 per cent of income

Something else that was not in the note but has emerged from discussions with HMRC is the fact that the cap will essentially penalise anyone who gives more than 25 per cent of their income to charity.

Russell explained: “Because the basic rate of tax that a charity claims is protected, the Revenue has said people can still give more than 25 per cent of their income, they just won’t get the tax relief for the excess.  But if they give a sum such that the amount of basic rate tax that the charity reclaims exceeds the total relief that they are permitted, under the cap, to claim, then not only will the relief be restricted but the donor will get a tax assessment from the Revenue and will have to pay up.

“In that sense it has become a tax on giving,” he said.

“So while the government in the clarification note states that ‘tax reliefs exist to support a range of policy objectives, promoting activities such as philanthropy’ – this policy doesn’t promote or support philanthropy at all, it’s actually a huge disincentive.

“It says ‘we want to encourage you to give up to 25 per cent of your income to charity but we don’t want to encourage you to give away any more’.  

“They also say in the note that they are going to ‘ensure this change does not significantly impact on charities which depend on large donations’.  I’m not sure how they are going to ensure that without making carve-outs that make a mockery of their policy intention.”

Small charities will be affected too

And it is not just large gifts that may be impacted, Russell warned. “If a donor gives, say, £5,000, or even £500, to a local charity under gift aid, that could still be subject to the cap if the donor is also giving substantial and numerous donations to other charities in the same year, such that overall the cap is exceeded. So, which donations will the donor cut out to stay within the cap? It may well be those small local ones which the donor is less committed to, as well as shaving back the major gifts.”

Russell also claimed the scheme fails to recognise that a lot of large donations go to donor advised funds like Charities Aid Foundation, Stewardship and community foundations, all of which make grants to small charities on the back of the gifts that they receive from major donors.  

“It may be that a number of small charities will close as a result of this policy.  I remain very concerned, I don’t think it’s good policy and it should be scrapped.”

CAF: Worst fears confirmed

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." 

Proposal ‘will reduce donations immediately’

Separately, David McHattie, head of charities at Barclays Corporate, warned that the uncertainly caused by the proposed cap is likely to disrupt donations this year even before the measure is actually implemented, and advised charities to take action immediately.

He said: “For those charities reliant on major donors the impact cannot be underestimated. 

“Charities need to start working closely with their major donors now, exploring their plans and understanding the likely effect on each donor individually if the legislation goes ahead, as some will be more impacted than others.   This can then be factored into budgets and forecasts for this year and beyond.”

Give It Back George campaign

Support for the Give It Back George campaign has snowballed since it was launched by NCVO and CAF two weeks ago.  At the time of publication it had attracted the backing of more than 1,850 organisations and individuals.

Adrian Beney
Partner
More Partnership
5 Apr 2012

I agree with Kevin - this is quite awful, and it doesn't just affect the very very wealthy. It affects the generous, and this is shameful.

Our FAQs as we can see them, and for what they are worth to anyone on this are at http://biy.ly/GIBGeorge

Comments

[Cancel] | Reply to:

Close »

Community Standards

The civilsociety.co.uk community and comments board is intended as a platform for informed and civilised debate.

We hope to encourage a broad range of views, however, there are standards that we expect commentators to uphold. We reserve the right to delete or amend any comments that do not adhere to these standards.

We welcome:

  • Robust but respectful debate
  • Strongly held opinions
  • Intelligent relevant discussion
  • The sharing of relevant experiences
  • New participants

We will not publish:

  • Rude, threatening, offensive, obscene or abusive language, or links to such material
  • Links to commercial organisations or spam postings. The comments board is not an advertising platform
  • The posting of contact details for yourself or others
  • Comments intended for malicious purpose or mindless abuse
  • Comments purporting to be from another person or organisation under false pretences
  • Gratuitous criticism, commentary or self-promotion
  • Any material which breaches copyright or privacy laws, or could be considered libellous
  • The use of the comments board for the pursuit or extension of personal disputes

Be aware:

  • Views expressed on the comments board are left at users’ discretion and are in no way views held or supported by Civil Society Media
  • Comments left by others may not be accurate, do not rely on them as fact
  • You may be misunderstood - sarcasm and humour can easily be taken out of context, try to be clear

Please:

  • Enjoy the opportunity to express your opinion and respect the right of others to express theirs
  • Confine your remarks to issues rather than personalities

Together we can keep our community a polite, respectful and intelligent platform for discussion.

Free eNews

Macmillan Cancer Support announces £3m corporate partnership with owners of Argos

27 Mar 2015

Macmillan has today announced that it is launching a two-year partnership with Home Retail Group, which...

IoF and government launch 'memorandum of understanding' on payroll giving

26 Mar 2015

The Institute of Fundraising and the Treasury have agreed a new ‘memorandum of understanding’ to improve...

Introduce separate legislation for commercial 'umbrella' lotteries, say MPs

25 Mar 2015

Separate legislation requiring higher payouts to charity should be introduced to govern larger commercial...

Commission investigates Christian charity over misappropriation of funds

27 Mar 2015

The Charity Commission is investigating a Christian charity over concerns relating to the repossession...

Charity investigated over £1.7m losses in US property

26 Mar 2015

The Charity Commission has opened a statutory inquiry into a Jewish charity over concerns that investments...

NCVO and Localgiving partner to provide discounted access to each other’s services

26 Mar 2015

Members of Localgiving, the online fundraising platform, will get free or discounted membership to NCVO,...

Social media 'slacktivism' encourages people to donate, finds JustGiving report

18 Mar 2015

People who share a fundraising page on social media are four times more likely to donate than those who...

Samaritans closes Twitter monitoring app permanently

11 Mar 2015

Samaritans has confirmed that it has permanently closed its app that was designed to monitor people’s...

Daniel Phelan dies, aged 58

13 Feb 2015

Daniel Phelan, owner and editor-in-chief of Civil Society Media, passed away on Wednesday following a...

Join the discussion

 Twitter button

@CSFinance