The coalition are keen to be seen as clamping down on irresponsible tax avoiders, but George Osborne seems to be going after charities instead. The government have cited tax evasion as a reason for reducing tax reliefs in the budget — a move which hits charities reliant on large donations.

Despite offering reassurances that they would explore ways to avoid impacting charities, the government are yet to bring proposals forward. Over to Plan B: smear the charity sector! A Number 10 spokesperson said:

“In certain instances they may be giving to charities and those charities don’t, in all cases, do a great deal of charitable work.”

Whilst the government argues that the wealthy are taking advantage of charity tax exemptions to avoid paying income tax, HMRC seem unable or unwilling to provide estimates on the extent to which individuals are cheating the system.

The process for tax-exempt charitable giving is separate to that required to register as a charity — and obligates organisations to provide evidence of their activities.

  • A charity must first apply for a charity reference number from HMRC
  • They must give details on its to work to ensure their operations are charitable
  • The applicant must undergo a “fit and proper person” test

If Number 10 believes certain bodies are not performing good works, why not simply revoke their eligibility for tax-exempt giving with HMRC?

Or is George using tax avoidance as an excuse to take money from charities?

HMRC got in touch with their take on the issue – but we still haven’t seen evidence of these “sham charities”:

“HMRC does see and tackle abuse of donor charitable reliefs through sham charities (bodies that purport to be charities but in fact aren’t) but these bodies are set up in the UK as well outside the UK.  A new definition of a charity for UK tax purposes was introduced in 2010 which includes a requirement for the managers of the charity including its trustees to be “fit and proper persons”.

At the same time HMRC introduced a number of new security checks on charities claiming tax reliefs, including repayments of tax under Gift Aid. HMRC works very closely with charity regulators to identify and deal with both sham and non-compliant charities.”

  1. It doesn't add up... says:

    Osborne’s consternation about charitable giving leading to reductions in tax paid are a delightful farce.

    1) Isn’t that the whole idea of charitable giving? Apparently not when the charities aren’t really charities – now there I have some sympathy. But the answer is to repeal the Charities Act 2008 and sack Dame Suzy Leather, so that charities once again do what they say on the tin (sic).

    2) It transpires it’s the overseas donations he particularly objects to. I’m sure taxpayers agree that the government’s overseas donations a.k.a. aid are also often highly objectionable.

  2. All the discussion has focused on large charities. However, some of the money may be going to small charities which many people may not deem to be worthy of such a generous tax break.

    For example, let us assume that I am fortunate enough to be a 50% taxpayer and wish to donate £1m to a charity of my choice. Let us then assume that I choose to give it to a local cats’ home. So, I give them a cheque for £800K and tick the gift aid box so they can claim the remaining £200K from HMRC. I declare it on my tax return thus reducing my tax bill by £300K. Therefore the doantion has effectively cost me just £500K with the taxpayer stumping up the rest. Is it really fair that I could force the government to give £500K to a local cats’ home?

  3. Targetting charities is something the government is quite keen on. In many areas of public policy, including the Welfare Reform Act, the Health Act and the current legal reform bill, charities have played a major role in articulating the concerns of those most likely to be affected adversely by reform.

    Ministers (Grayling and IDS in particular) believe that charities should not have a policy or campaigning role, and should restrict themselves to providing direct services, often where the state has withdrawn them. Reducing charitable income from major donors (at a time when corporate donations and public sector funding are contracting) is a roundabout means of achieving this aim. Larger charities are already cutting their policy and advice functions merely in order to survive, damaging public debate and stifling opposition.

  4. Maybe Osborne objects to tax breaks for charities because they were introduced by Gordon Brown. Or is it that for all their talk, the Tories don’t really give a toss about charities?

  5. Maybe its the charities like the Harley foundation (the former Welbeck estates) and others owned by aristocrates they will be targeting. Charities can be a great way of tax avoidance, A income of £11.11m and spending of nil ???? all the trustees are members of the same family
    Financial breakdown
    Income Spending
    Voluntary income/Generating vol inc £11.11m £0
    Charitable activities £210,789 £577,040
    Trading £0 £0
    Other £0 £0
    Governance £5,000
    Investment/Investment management £94,711 £2,867
    Investment gains £760,849
    all charity accounts are available online but how many people ever check them.

  6. They are not smearing the charities, but we all know of so many trusts that are making £1M+ in donations with a total net spend of £0. It is a tax scam, and this should have been closed years ago. We need to allow them to go after these sorts of trusts, but we must also stand up for charities who spend big with donation money on areas of real need, e.g. Cancer Research UK. They do some excellent work and we need to understand this, and not penalise the majority for the minority of scam trusts and rich people’s net eggs. They need to pay tax, everyone needs to pay tax. So if they have found a loop hole, it needs to be closed. I would suggest all charities and trusts given the government status needs to have their accounts audited, and if they do not spend AT LEAST 80% of donations on their causes they need to loose that status immediately.

  7. Ian McGregor says:

    Thanks to Simon for a clear and concise explanation of how Gift Aid works for a higher rate tax payer.

    Put that way, it does sound unfair that the Government is being “forced” to give £500K to a cats’ home. However, let it not be forgotten in that example that the donor is giving £500K of his own money. Or to put it another way, the donor is redirecting £1m of his income to the charity of his choice. If he hadn’t already “earned” £1m by his own efforts there wouldn’t be £500m going into the tax pot in the first instance.

    Is the choice of a cats’ home possibly a bit emotive. Would a “better” charity be one helping abused children, cancer patients (present and future), sufferers from mental issues – all of which demonstrably save the state money. If the Big Society is to mean anything then the charitable sector doesn’t need to be hampered like this.

    Charities legislation doesn’t draw a distinction between more and less deserving charities. However, it does draw a distinction between legitimate and “dodgy” charities – the latter should never get charitable status or, if they have repositioned themselves, that status should be revoked.

    To put the above comments in context – my preference would be for charitable relief to be available at not 50%, certainly not 45%, but at least at 60% i.e. I would favour an increase in the top rate.

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