The sector would be naïve to assume that the government will not revisit the prospect of limiting tax relief on charitable giving just because the Chancellor u-turned on the latest proposal, the chair of Community Foundation Networks has warned.

In a discussion paper titled Lessons from the ‘charity tax’, Matthew Bowcock states that the debate around the tax relief cap highlighted some important issues that have still not been resolved, or even properly examined.

He wrote: “It would be naïve to assume that because the Chancellor has withdrawn the current proposal, tax relief for charitable giving will not be questioned again in the future, as there remain two conflicting fairness principles.

“On the one hand, Treasury and HMRC argue that everyone should pay a fair share of tax and you should not be able to hypothecate their taxes; on the other hand, charities argue that you should not be taxed on what is not yours as you have given it away to society. These two principles are not easily reconciled.”

Not enough evidence about giving

Bowcock also says that the debacle has exposed the lack of adequate data on giving.  “Apart from the NCVO and Coutts Million Pound Donor annual reports, there is virtually no information available on the proportion of higher-rate taxpayers that give, how much they give and to which causes.

“HM Treasury … observed that the charity sector;s estimates of the potential impact did not square with their figures. This may be because Treausry was also working from crude data.”  Better data could have led to better understanding of the impact and stopped the proposal from ever seeing the light of day, he suggests.

He points out that accurate data on tax reliefs for giving does exist in HMRC computer systems and it should be possible for it to extract this for public consumption, so that everyone could be better informed about the substance of proposed changes rather than arguing over estimates of impact.

Philanthropists shoud expect more scrutiny and be prepared

Bowcock concludes by warning philanthropists that they should now expect to come under increasing scrutiny and pressure to justify the public benefits that their giving delivers in return for tax reliefs.

“In any future debate philanthropy must find better ways to argue its value by presenting the benefits that it brings to society.  Evidence needs to go beyond quantifying the amount of giving…and include the economic and quantifiable social value delivered by philanthropic investments in projects.

“Only then will the true value of independent philanthropy be appreciated and its role established in Britain’s culture.”

Click here to read the full paper.