5 encouraging signs the Government may see sense on the ‘Charity Tax’ #giveitbackgeorge

by Stephen Tall on April 12, 2012

A few encouraging signs today that the Government is prepared to have the strength of mind to think again about the ‘Charity Tax’.

Encouraging sign #1

is that the right-wing press is up in arms about the proposal to hit charities’ bottom lines. Neither David Cameron nor George Osborne will take delight, for example, in seeing this Sun headline:

Charity basher: PM faces growing backlash over tax squeeze

DAVID Cameron gaffed in a fresh Budget row yesterday when his plans for a US-style tax relief cap on giving to charity backfired. Tory MPs joined more than 900 angry charities in a spiralling revolt on the Chancellor’s plans to close the door on tax dodgers. They insist that good causes will lose hundreds of millions when donors shut their chequebooks. The PM signalled the Government is preparing for an embarrassing U-turn.

Or this, at the other end of the right-wing spectrum, in the Telegraph:

Charity tax relief proposals are ‘galling’, says philanthropist
Proposals to cut the rate of tax relief on charitable donations are “galling”, a leading philanthropist has said, because they imply the Government regards her work for good causes as a “tax dodge”. … Marcelle Speller, a dotcom millionaire and founder of the charity website Localgiving.com, said the reforms run contrary to Mr Cameron’s Big Society agenda and would mean less money goes to charity. “I’m still very passionate about what I do with Local Giving. I’ve put four years of my life and £2m into it so far, and I won’t stop doing it. But it’s rather galling to feel that the last four years and that money has now been seen as a tax dodge. It doesn’t give me a very good feeling,” she told BBC Radio 4’s Today programme.

Encouraging sign #2

Conservative MPs are also waking up to the danger posed to the charitable sector by the proposals — here, for example, is Chris White writing on ConservativeHome:

This is seeking to using a sledgehammer to crack a nut, and could have unintended consequences for the sector and for the Government’s aims to increase private giving and support charities. Fortunately, there is plenty of time for the Government to reverse this decision and to work with the sector at the upcoming Giving Summit to find constructive ways to clamp down on tax avoidance while at the same time supporting charities.

Encouraging sign #3

The Treasury’s case is beginning to unravel. Until now, the charity sector has been frustrated by the Treasury’s refusal to provide any evidence for their tendentious claim that the Government’s proposals were vital to clamp down on alleged tax-avoiding philanthropists laundering cash through dodgy bogus charities. Now the reason for that refusal is becoming apparent — HM Treasury doesn’t understand its own rules, as The Independent notes:

Yesterday the Treasury appeared to be unable to explain exactly how the tax avoidance scheme worked. One example they gave would have been illegal, another would have resulted in the individual losing all the money which they had donated and the third would also have been against charity rules.

In addition in order for a recipient to benefit from avoiding tax they would somehow have to get their money back from the charity they had donated to (without having to pay tax) – or get a benefit in kind. But no-one could explain how this would work.

Encouraging sign #4

The Government has signalled a willingness to consult (hopefully more genuinely than the rather token effort of the Treasury last week), with reports that ministers are open to persuasion. Unfortunately, though, they appear to have ruled out the simplest option, exempting charitable donations from the proposed tax-relief cap, according to the Financial Times:

George Osborne is preparing to offer a compromise to charities that rely on a small number of large donations after howls of protest from the voluntary sector about the government’s proposed cap on tax reliefs. Aides to the chancellor have told the Financial Times he is looking for ways to make sure that those organisations that are funded by one or two significant donors do not lose out as a result of the cap, but has ruled out exempting the charitable sector altogether.

While The Guardian floats a possible compromise:

One proposal being circulated is to treat gifts to UK-based charities differently from those to charities based abroad. But ministers say this idea may be complicated by EU law requiring equal treatment of EU-based charities.

Encouraging sign #5

This encouraged me personally, at least, during a week when the Government appears to have taken odd pleasure in antagonising philanthropists by impugning their motives — a reminder of the principle at stake here, via Nick Aldridge’s blog:

The important principle is that people shouldn’t be taxed on income they’ve forgone by giving it away for the public benefit. While the Gift Aid scheme is complicated, with reliefs claimed partly by charities and partly by donors, it’s this key principle that’s under attack.

Quite so. Here’s hoping the Government remembers this principle, then pauses to think exactly what they’d make of the ‘Charity Tax’ if it were being proposed by the Opposition. And then follows its instincts and exempts charitable donations.

To show your support for the ‘Give it back George’ campaign for the Government to drop the charity tax, please visit this site and sign the petition.

Here’s my archive of stories relating to the ‘Charity Tax’: