What’s the problem

Many charities depend upon major gifts from philanthropists. And in turn, these gifts are incredibly important: £11 billion was given to charity last year, with almost half of this coming from just 7% of donors. And many of these gifts are used to set up grant-making trusts and foundations that support small charities.

Today’s gifts are tomorrow’s grants.

These donors are given strong encouragement to give by an income tax relief called Gift Aid.

Until now, that is. In the March 2012 budget the Chancellor announced a cap on income tax reliefs that will affect charities both large and small and the philanthropists who support them. There’s a detailed explanation here.

It will cost more to give to charity

Amidst the complexity of the tax system, the problem is simple: a cap on the tax reliefs available to philanthropist will increase the cost of giving to charity. And like other things in life, when the price goes up we can afford to do less.

It’s also framing tax relief on donations to charity as some sort of tax avoidance measure: it creates the impression that giving to charity is a bad thing. But unlike other tax reliefs, this is not for personal benefit: it still costs donors to give to charity.

So our largest donors are likely to give less

This will mean our biggest donors will give less to charity. And it will mean charities have less resource available when pressures in our society are already putting more demands upon them.

Another problem is that the Treasury are now equating giving to charity with avoiding tax… when other government departments are asking us to give more to charity.

In short, the cap on Gift Aid is a problem for us all.

So what’s the solution?

Further reading:

18 Comments on “What’s the problem”

  1. Nile says:

    If you give money to charity, and you’re a taxpayer, that money can safely be assumed to have come out of taxed income.

    That is to say: before you got hold of the money you donated, the Revenue got a slice of your gross income, and Gift Aid is the Revenue passing that slice to the charity.

    On the one hand, there’s no case for the donors to complain; they see the same amount go from wallet to worthy cause. On the other hand, the charity receives less, because the Revenue are now keeping “their” slice of whatever the donor earned in order to get their wallet out.

    But what is “their” money? Is Gift Aid an act of generosity by HMG, a partial version of “We’ll match your donation” ? Or are we looking at a partial confiscation of donations?

    Put a bit of thought into this, and make a clearer case. At best, the cap on Gift Aid is mean-spirited; and I think that this action fails on grounds of equity and can be taken up in court. Even if it is the mandated manifesto policy of a democratically-elected government that enjoys the support of the electorate in explicitly uncharitable acts.

    Either way – matching or snatching – any statement that implies Gift Aid is a ‘Tax Dodge’ is a dangerous distortion of fact that needs to nailed – recorded, republished, and attributed to the devious propagandist who originated it.

  2. Matthew Hall, Rotherhithe says:

    This is attrocious, when budgets are cut and charities are having to do less things, a cap on the tax reliefs will increase the cost of giving to charity. This will put the boot in the Prime Minister’s Big Society project, because charities will not be able to offer the services that they are. Stop this proposal at once.

  3. [...] and threaten the many charities that rely on these large donations to survive (for more on this see giveitbackgeorge.org, the campaign to get the government to reconsider, headed up by NCVO and CAF). Uncovering more [...]

  4. Kerry Teague says:

    I’m interested in hearing the views of the 8% of givers who account for 50% of charitable donations – in what way will this change affect thier giving?

  5. matthew says:

    Do you have any numbers on how much money out of that £11 billion would be affected by this cap? The half coming from 7% of donors appears rather disingenuous, as it’s certainly much less than that.

  6. Keith says:

    A case study? We are a local charity looking to acquire, refurbish and reopen a Grade II listed building. Hard work, careful business planning, feasibility studies, cashflow projections, draft income and expenditure accounts have resulted in a great deal of support and one individual taxpayer poised to donate between £1M and £2M to us. With gift aid the individual claims tax relief of £250,000 to £500,000. So at the lower end the individual has paid £750,000 net but we have received £1,250,000 and at the upper end the individual has paid £1,500,000 net but we would have received an extra £1,000,000, bringing the value of that donation up to a total of £2,500,000.
    The £750,000 which the individual pays to us is a donation out of taxed income. He paid tax at the highest rate of 50%. So the goverment has received £750,000 nett in tax (£1M less the £250,000 tax relief) out of which it is passing £500,000 to us, retaining £250,000. Its effective tax rate has therefore dropped from 50% to 16.67%. BUT the donor is under no obligation to us to make the donation. If he or she chooses not to do so the government retains the full 50% tax of £1,000,000.Now the government is faced directly or indirectly with a grant application for the shortfall and has to make £1,250,000 available for the project. It has £1,000,000 from the taxpayer but now has to find £250,000 from other resources!
    Has the proposal really been thought through in terms of the overall fiscal impact??

  7. Jenny says:

    Most charities do not recieve individual donations of £50k or more.

    This strikes me as a campaign by CEO’s of membership organisations.

    • Note that many major gifts are used to set up grant-making trusts and foundations that support small charities.

      This is by no means a campaign by membership organisations. Have a look at the supporter list -you’ll find organisations ranging from small community groups to large national charities as well as universities and cathedrals.

    • fk says:

      I would totally disagree with this statement. Many charities have extablished major gifts programs bringing in donations well over 50k and many more are in the process of establishling Major gift programs. We need to create a ‘fashion’ for giving and this will not help.

  8. Keith says:

    Exactly! EVERY charity will be badly affected to some degree.

  9. Will says:

    There shouldn’t be a cap the tax relief should be removed altogether. The money comes from general taxation and is effectivly giving ‘philanthropists’ direct choice on where our tax money goes, to put it another way letting a few rich people choose where my hard earned and then contibuted money goes. Any argument that it is ‘their tax money’ is flawed from the start, the point of a government budget is we ALL contribute what is determined our fair share and then elected politicians spend that money. YES charities get extra money from this system but it is a morally flawed method.

  10. charlottemgl says:

    I am really concerned that the Giving Summit has been cancelled. By whom. If the Government cancelled it then it is running away from the issue. If it is the charity sector then we have missed an opportunity to engage.

  11. charlottemgl says:

    I am concerned that the Giving Summit has been cancelled. By whom? If it was the Government then it is running away from the issue. If it was the charity sector then we have missed an opportunity to engage.

  12. charlottemgl says:

    It seems as if the Govenment has cancelled the Giving Summit which just shows that the PM and the Chancellor have not got the courage required to resolve this very serious issue despite many of their big party donors wanting them to do so.

  13. John gooch says:

    Everyone should pay their fair share but Charitable Giving should be part of that. The Big Society is supposed to encourage not deter rich people funding unsupported enterprise.

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