Charities should “step back from the storm in the teacup” and instead of asking the government to reverse its decision on the charitable tax relief cap, should campaign for broader reform of the tax system, says tax researcher Richard Murphy.
Speaking at a debate on the issue of the tax relief cap organised by the Oasis Foundation last night, Murphy, who runs Tax Research UK and was previously an accountant, outlined his proposal for scrapping all higher-rate tax relief and reforming the system to ensure that all donations of less than £5,000 can be assumed to have been made from taxed income.
In the 2011 Budget the government announced that charities would be able to claim gift aid on donations under £10, increased to £20 in the last Budget, without having to get signed gift aid forms from 2013. Murphy claimed that his plans are essentially an extension of those proposals. At the end of last month the government published a consultation document on the small donations scheme proposal.
Murphy said the current system of tax relief was unfair because the government gives more relief to those who give more. He explained that it costs 80p for a basic-rate taxpayer to give £1 to charity; for a higher-rate taxayer it costs 60p and for a 50 per cent rate-payer it costs 50p.
He said: “As a democrat and as somebody who believes all people have equal standing in society, I can see no reason at all why the government should act in such an extraordinary fashion.”
Murphy added that his solution was that “a simple application be made to the government quarterly by each charity for a tax rebate on the total sum received, with the rebate being £1 for every £4 given”.
He predicts this will have four outcomes:
- A reduction in the time it takes charities to process gift aid claims which would free them up to concentrate on core charitable activities
- Charities would be spared of asking donors about their tax status
- The tax system would be simplified
- HMRC’s time would also be freed up so they could focus on regulating rogue charities
However, the proposal did not receive much support from those attending the debate, who were sceptical of its chances of becoming government policy.
Steve Chalke, founder and chief executive of Oasis, accused Murphy of living in “Fairyland”.
Extent of the impact of the cuts
John Low, chief executive of the Charities Aid Foundation (CAF), who was there to put the case for the Give it back George campaign, told the audience that the cap would cost the sector “hundreds of millions of pounds” and it would not just impact on large charities but on smaller charities who receive funding from grants.
Chalke added that he had already had major donors write to him saying that they would not be able to donate at the same level.
Murphy challenged this, saying that because the cap applies to the largest donations “the vast majority of the 160,000 charities that exist in this country at this time will also be completely and utterly unaffected,” and that people who were that wealthy did not tend to check their tax status before deciding to give.
Low disputed that argument and said: “Nobody gives away £1m without knowing the tax position.”