Let donors escape tax relief cap by giving the relief to charity, says Red Cross

18 Apr 2012 News

The British Red Cross has proposed a compromise over the tax relief cap: that donations only become subject to the cap if the taxpayer claims the relief for themselves, but not if they donate it to the charity.

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The British Red Cross has proposed a compromise over the tax relief cap: that donations only become subject to the cap if the taxpayer claims the relief for themselves, but not if they donate it to the charity.

This would have the effect of increasing the sums going to charities while also preventing the fraud and abuse that the government claims it wants to clamp down on.  

It would also help to level the playing field between higher-rate and standard-rate taxpayers, as currently 87 per cent of people are not higher-rate taxpayers and cannot claim back any tax for themselves on their generosity.

The Red Cross has written a position paper on the Budget proposal to cap tax reliefs on charitable donations for higher-rate taxpayers, and sent this to the Chancellor.  The paper states that the proposed measure is not only at odds with the government’s own announced agenda of increasing and facilitating philanthropy, but would reduce the charity’s ability to achieve its charitable objectives and reduce its help to people in a crisis.

It suggests that a simple solution: offering donors a choice of claiming back the tax themselves or letting the charity have it. It says:

“Donors who claim tax relief on charitable giving should have a choice on making their donation a further benefit to society.  We are proposing an opt-in/opt-out system which would increase the value for the charity of a donation from a higher-rate taxpayer. The donor choices would be:

1.    By opting out of the proposed cap, the relief would be claimed directly by the charity. 

2.    If donors want to claim the tax relief for themselves, the proposed cap would apply.”

The Red Cross suggests the system should be implemented by the donor making the declaration to the charity rather than to HMRC.  Director of fundraising Mark Astarita said: "We think the declaration is to the charity at any point of donating and collected by us just as today any advert or appeal asks the donor to tick the box so we can claim gift aid. We will need to add another box and wording. Special one-off forms may be devised for big donors to be given by the charity so we claim from HMRC the tax difference, not the donor."

The position paper provides examples of how this proposal would affect certain levels of donations.  One such example shows that if a higher-rate taxpayer makes a £1m donation and opts to give the tax relief to the charity, the gift becomes worth over £1.8m to the charity, a whole £568,000 more than it is currently worth.

The Red Cross states that according to HMRC, £360m was claimed back in 2011/12 by higher-rate taxpayers from gift aid and covenants.  However, not all that is available is claimed, suggesting that the amount that could be raised for charities could be even higher.

The charity has not yet had a response from the Chancellor.

Click here to read the full British Red Cross position paper.

Click here to read Mark Astarita's blog about the idea.

Clegg: We don't want to damage charities

Meanwhile, deputy PM Nick Clegg appeared to tell the Today programme this morning thatthe government would make concessions over the proposed cap.

He said: "Of course, as we said at the Budget, we will look at this in detail. We have got time to get the details right. We will look at this in the round and we will do so with an open mind and very sympathetically, because we don't want to damage charities. We don't want to inhibit philanthropy.

"But, the principle of saying that there should be some limit to what are taxpayer-funded allowances in the tax system as a whole is something which is sensible." 

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