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Child benefit change could boost fundraising

Finance | Vibeka Mair | 29 Oct 2010

Charities could find new opportunities for donors among higher rate tax paying families not wanting to lose their child benefit under the government’s new plans for state benefits, according to professor of charity studies Gareth Morgan.

Morgan, who leads the Centre for Voluntary Sector research at Sheffield Hallam Univeristy, has written a report on the implications for charities after the 2010 spending review.  He said: “The (government) announcement that parents who pay higher tax rate will lose child benefit creates an opportunity for those just into the higher tax rate band to give more to charity.

“It has always been the case that people on higher rate tax get an extra tax rebate on donations under gift aid. But if gift aid donations bring down their taxable income so it stays within the basic rate band, they could keep the child benefit they would otherwise lose.”

He gives the example of a two-child household with one higher-rate taxpayer earning £45,000 who currently gives £50 per month to charities under gift aid (£750 gross per year gross or £600 per year net).

Her taxable income is £44,250, making her a higher rate taxpayer. So she would lose child benefit of £1,752 a year under the new rules. (Her £600 of net gifts to charity only costs her £450 after allowing for higher rate relief).

But, if she increased her charitable giving to £100 per month net (£1,500 per year gross) her taxable income would drop to £43,500 which is within the basic rate band.

So she and her family get to keep £1,752 (tax free) of child benefit in return for extra charitable gifts which cost her little more than £450 after tax and the charities she supports get an extra £750 from her additional gift after reclaiming tax under gift aid.

The report also suggest charities which face losing statutory funding as a result of cuts could challenge through law:

“If a public sector body threatens to withdraw funding without going through proper procedures, it is possible to institute a ‘judicial review’ in the courts, to consider if the authority acted illegally,” said Morgan.

“Sometimes even the threat of seeking a judicial review may be enough to get them to think again if decisions have not been taken properly.”

Morgan also warned the public sector could start to lose interest in the principles of full cost recovery with the increase in payment by results.

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