Cutting back on tax reliefs for donors could stop them from donating altogether, according to research into charitable giving and gift aid behaviour among higher earners.
The survey, Qualitative research to understand charitable giving and gift aid behaviour amongst better-off individuals, which was undertaken by independent researcher Ipsos Mori on behalf of HM Revenue and Customs, revealed that the principle concern of these individuals is maintaining current levels of revenue for charities.
Those taking part in the survey revealed that they had concerns that were donors no longer to receive tax reliefs on donations, then they may “cut back on the number of donations they made”, “reduce the level of their donations disproportionately”, or even “stop donating altogether” – meaning that the charity could be worse off.
Ipsos Mori conducted 32 interviews with higher and additional rate taxpayers, with an income of at least £100,000 per annum who had claimed marginal rate tax relief on a donation of at least £100 though gift aid.
The research looked at donors’ awareness of available tax reliefs and found that gift aid was “not always well understood”. It said that participants held “misconceptions about how tax reliefs were split between the charity and the donor and, in some cases, were unaware that the relief was split at all”.
Awareness of leaving a legacy to charity was also high among the participants – although most saw this as something to be done in later life. Awareness of payroll giving was also high, however, awareness of social investment tax relief was low.
In looking at the impact of gift aid on charitable giving behaviour, the research showed that participants “generally felt that tax reliefs had little impact on their decision to make a donation”, and that reliefs are not seen as a motivation in itself. However they did sometimes encourage donors to be more generous with, in some cases, donors factoring relief in “precisely to maximise their donation amount”.
Tax relief preferences
In regards to tax relief preferences, the survey showed that respondents had “little support for changing tax relief structures in the gift aid system”, with participants feeling the current system was fair to both donors and charities.
Some participants said they would be happy for charities to claim all tax relief on a donation, however the “prevailing view” of participants was that “change could mean that charities would be worse off as donors may not only donate less but may make a disproportionate reduction in their donations in response”.
Participants were also against taking basic rate relief from the charity as they felt this “would remove an important income source for them which the donor may not make up”.
In response to the research, Rhodri Davies, policy manager at the Charities Aid Foundation, wrote in a blog post that the report was a “missed opportunity”. He questioned the methodology and use of only 32 interviewees.
He said: “Surely if HMRC wants to make truly evidence-based decisions about whether to make change to various tax reliefs, it needs some solid evidence about behavioural impact? The danger is that a report which does not profess to provide such an evidence base is interpreted as if it did.”
He added that the report is also flawed over the question of awareness. He said: “Whilst its conclusion that levels of awareness of many incentives remain low is almost certainly right, by the report’s own admission, “It should be noted that participants had been recruited on the basis that they had claimed tax relief via gift aid and this may explain the high awareness and understanding of this relief in comparison to others.”
“But what is the point of gauging the awareness of an incentive of a group of people whose membership is dependent on them having used that incentive in the first place?”
