Thursday, May 31, 2012

Tax relief on charitable donations: A welcome U-turn?

George Osborne's decision in his recent Budget to limit the tax relief available on charitable giving appears to have been inspired by Nick Clegg's idea of a 'tycoon tax'.

And that idea was strictly back-of-an-envelope and helped take the idea of a mansion tax off the political agenda just as the some of the more thoughtful Tories were becoming willing to consider it. So in many ways I am happy to see the limit scrapped in the latest U-turn.

But I cannot quite share the enthusiasm for it of our own Stephen Tall:
Kudos to the Coalition for unequivocally defusing this row, rather than (as I’d feared would happen) attempting to finesse a compromise that would have been messy and satisfied no-one. 
The simple principle which I’ve consistently argued - that in a liberal ‘Big Society‘ individuals shouldn’t pay tax on money they voluntarily forego (sic) for charitable causes - is the one that’s been upheld.
Trouble is, we only apply that principle to the wealthy. As I wrote in an earlier post on the subject:
the row over the reduction of tax relief on charitable donations also reveals that the wealthy inhabit a different tax world from the rest of us. There is a scheme whereby people under the PAYE system can use it to make charitable donations. But if you or I announced to the authorities that we had decided to reduce what we pay in income tax and give it to charity instead, I think we would receive pretty short shrift from the authorities.
A world in which we don't pay tax but all give to our favourite charitable causes has its attractions, but I don't suppose it would prove workable. There would be plenty of money for donkey sanctuaries and Well-Behaved Orphans, but less for learning disabilities or the criminal justice system.

So we have to pay our taxes. And if we have to pay our taxes, shouldn't we all be obliged to pay them before donating to our favourite causes?

I am the last person to support the state over Stephen's 'liberal Big Society', but justice matters too. If philanthropy is a good thing - and it is - shouldn't we all have the chance to enjoy it?

At present, as I suggested in the title of that earlier post, it is a case of tax avoidance for the rich and PAYE for the rest of us.


Stephen Tall said...

It's not correct to say "we only apply that principle to the wealthy". Any PAYE taxpayer can also give to charity out of their pre-tax income through Give As You Earn, just as higher-rate taxpayers do.

The founding principle of tax relief on charitable giving is that you don't pay tax on money voluntarily forgone -- and that applies equally to the wealthiest and the poorest donor. The Coalition's U-turn maintains that equality of treatment.

Jonathan Calder said...

The HM Revenue and Customs page on payroll giving is here.

I suspect the key phrase is "If your employer or company/personal pension provider runs a Payroll Giving Scheme...."

I wonder how many do?

Keith LePla said...

Not just payroll giving - every time any taxpayer gives to charity and ticks the box (or signs the declaration) allows the charity to claim back tax on their behalf. Higher rate taxpayers only claim back the difference between their top rate of tax and standard rate. The weakness in the system is the ease of setting up one and the loose policing of what rules there are by a grossly under-resourced charity commission. I am concerned that the system is far too open to abuse.