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I honestly cannot believe the cack-handed way in which the government has sought to defend George Osborne’s proposed tax-relief cap for charity donations. Worse still they have attempted to do so in a manner that displays a total lack of understanding on how tax relief for charities actually works.

It isn’t rocket science guys – all you need to do is have a look at the appropriate page of the HM Revenue & Customs website entitled “Giving to Charity: Individuals”.

Osborne should know – or someone should have told him – that it is a complete myth that a person can reduce their income tax liability to nothing (that’s what he claimed some people were doing) by gifting to charity. So why did he claim that they could? Stupidity? Ignorance? Perhaps he has never seen a Gift Aid form because if he had he might have noticed that the giver has to certify that “I will pay an amount of Income Tax and/or Capital Gains Tax in this tax year that is at least equal to the amount of tax the charity will reclaim on this gift.”

For a 40 or 50 per cent taxpayer (or going forward a 45% taxpayer) to reduce his or her effective rate to anywhere near the 20% basic rate through charity relief, would mean having to give away an enormous slice of his/her income. No one in their right mind would do that purely for the tax effect.

Of course tax relief encourages people to donate a bit more than they might have given without it (isn’t that the whole point?) and many people might prefer to send the money to an organization which they feel would spend it more widely that any government but to claim as George Osborne has, an association between giving, tax-dodging and greed is total and outrageous nonsense of which the Chancellor should be ashamed.

However, this isn’t to say that there are not issues that need to be addressed by Mr. Osborne. In the UK charities are regulated. In England & Wales this regulation is undertaken by the Charity Commissioners. In Scotland HMRC itself regulates charities and in Northern Ireland the Northern Ireland Charity Commission carried out this function.

In general charities are not permitted to engage in commercial or business activities – though many do through wholly owned trading subsidiaries – and they are not permitted to engage in political activities. They are however allowed to lobby but to my mind the dividing line between lobbying and political activity is not well policed.

However I genuinely do not think that UK charities can be used – or misused – for tax avoidance purposes. But under European Union law, UK taxpayers can donate to charities established in any other EU member state and claim tax relief against their UK tax bill. Many of these countries do not regulate charities to the same extent as the UK and some do not regulate them at all. This means that a UK taxpayer could set up a charity in another low or no regulated EU country and “donate” money to that charity which would use the money for the benefit of the person “donating” the money.

Mr. Osborne, this is a totally outrageous situation which must be stopped. But it isn’t a situation which arises under UK law and your attempt to “outlaw” it simply does not address the problem. No, what it does is damage genuine UK charities.

Mr. Osborne you need to take this fight to the European Union which demands that UK taxpayers get tax relief for unregulated “charities”. Why won’t you take the EU on? Is it your Liberal Democrat (pro EU) colleagues who won’t let you? Stand up to them George – in fact demand an EU-wide regulator for Charities.

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 Category: Taxation

 

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