Author Topic: Tax Relief on Charitable Donations - should it be limited?  (Read 1160 times)

John Short

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Tax Relief on Charitable Donations - should it be limited?
« on: April 15, 2012, 18:23:21 GMT »
There is an outcry from philanthropists about the new rules limiting donations under the Gift Aid rules to charities.  Various institutions such as Universities, Cancer Research UK, and Institutions supporting the Arts are also adding to the chorus of disapproval.  It is claimed from both sides that charitable giving by the rich will be hit by the reduction from unlimited donations qualifying for tax relief to a maximum of £50,000 or 25% of income.  For a synopsis see:
http://www.guardian.co.uk/society/2012/apr/15/charity-tax-relief-plans-philanthropists
http://uk.finance.yahoo.com/news/tax-relief-charities-rules-explained-130213417.html
http://www.telegraph.co.uk/comment/letters/9203761/Proposed-cap-to-charity-tax-relief-will-damage-philanthropy.html

But is this a case of Government recognising the tax expenditure aspects of this giving?  Your average person donating to a charity and gift aiding it allows a little spending of one’s tax money on a favourite project or activity – personal budgeting of government expenditure.  Allowing millions to be allocated that way may actually distort public spending away from stated priorities.  It would be interesting to see a tax expenditure analysis of Gift Aid to see what the allocation to various causes has been over the past few years for a more informed viewpoint.
« Last Edit: April 15, 2012, 18:28:19 GMT by John Short »

Reg

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #1 on: April 15, 2012, 18:51:26 GMT »
Oh yes absolutely.  One would love a more informed viewpoint. One delights in being asked when one visits a National Trust Property or a Zoological Garden if one would be favourably inclined towards "Gift Aiding It".  Of course one naturally looks back in the queue to ensure their are only the right sort of people before saying  - Oh yes please!

petagny

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #2 on: April 16, 2012, 09:10:46 GMT »
I hadn't really thought of the issue in this way, but you're right John, these should be considered as tax expenditures. For interest, this is what the IMF Code of Good Practices on Fiscal Transparency says about tax expenditures (under public availability of information):

'Statements describing the nature and fiscal significance of central government tax expenditures, contingent liabilities, and quasi-fiscal activities should be part of the budget documentation, together with an assessment of all other major fiscal risks.'

And in the supporting guidelines:

'Estimates should also be included of the current and future magnitude and impact of tax expenditures...' (my underlining)

And

'A statement of the main central government tax expenditures should be required as part of the budget or related fiscal documentation, indicating the public policy purpose of each provision, its duration, and the intended beneficiaries. Except in particularly complex cases, major tax expenditures should be quantified. Ideally, the estimated results of previous tax expenditures compared with their policy purposes should also be presented so that their effectiveness can be assessed relative to expenditure provisions.'

harnett

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #3 on: April 21, 2012, 13:56:36 GMT »
Yes - the correct way to look at it John.  What I find most interesting about this issue is similar to the cuts in further education in the UK.  Both policies are hitting at the middle classes - those that send their children to further education and also those who carry out the majority of gift-aiding (I suspect!  - backed up by Reg's comment on the "right" kind of people).  Strange that you have a tory-led coalition attacking the privileges of the middle class.  Electoral suicide?  Or another opportunity for them to back down as per the forestry issue?

I wonder if any other countries have a similar approach to charitable donations.  I seem to recall that in Italy that it is possible to indicate which church some of your taxes can go to and in the absence of a response they automatically go to the Catholic Church!

John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #4 on: April 26, 2012, 08:00:52 GMT »
I wonder if the idea was stolen from across the water - note the date! Slight difference in amounts allowed though - may need an adjustment in exchange rate - is this a forecast of the collapse of the euro?


The Minister for Finance, Mr. Michael Noonan, T.D., announced today that he intends to bring forward changes to the tax relief that is available for donations to approved bodies in Budget 2013 to take effect from 1 January 2013.

The Minister said that “Officials from my Department, the Revenue Commissioners and the Irish Charities Tax Reform Group have been working together on possible options to simplify the relief scheme and thus reduce the administrative burden on charities and the Revenue Commissioners of operating the scheme. Simplification of the scheme is also one of the recommendations of the Forum on Philanthropy and Fundraising. Having considered the proposals made to me by the working group and the Forum I have decided to signal my intention to introduce changes to the tax relief scheme from next year.”

The Minister also announced that “Even though the simplification proposals are designed to be revenue neutral, I am cognisant that the changes proposed might not be beneficial for all of those bodies that currently receive charitable donations. In order to ensure that all of those affected might have an input into the eventual policy decision in this matter, I have decided to engage in a public consultation process.”

The public consultation will be open for submissions from today and will close on the 11th of May 2012. Full details of the intended changes and how to make a submission can be found at the link below.

Submissions may be emailed to charities@finance.gov.ie or sent by post to ‘Donations Scheme Consultation’, Income Tax Incentives, Financial Services and Taxation Division, Department of Finance, Government Buildings, Upper Merrion Street, Dublin 2.
Public Consultation
8 February, 2012


Proposed Amendments to the Existing Regime for Charitable Donations
Section 848A of the Taxes Consolidation Act 1997 provides for tax relief at the donors’ marginal rate of tax (20% or 41%) for donations above €250 to approved bodies. The Minister intends to make the following changes to the scheme in Budget 2013:
i. Donations from all individual donors under the scheme will be treated in the same manner, with the tax relief in all cases being repaid to the charity. This would mean that self-assessed taxpayers would no longer be able to claim a deduction on their tax returns for donations made under the scheme.
ii. Introduce a blended rate of relief that would apply to all taxpayers regardless of their marginal tax rate. This would involve a rate of refund of around 30%. All donations would be grossed up as is currently done for donations from individuals within the PAYE collection system.
iii. The charitable donations scheme will be removed from the scope of the high earners’ restriction.
iv. An annual limit of €1 million per individual, which can be tax relieved under the scheme will be introduced.
http://finance.gov.ie/documents/pressreleases/2012/mn085append.pdf
« Last Edit: April 26, 2012, 10:17:47 GMT by John Short »

John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #5 on: April 26, 2012, 17:38:21 GMT »
The Irish Government is certainly looking at this from a tax expenditure perspective judging from page 14 "reduction in general tax expenditure" in http://finance.gov.ie/documents/publications/MOU/MOUjan2012.pdf which outlines the IMF EU Programme of Financial Support document.  This is dated 10 Feb. 2102

John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #6 on: May 31, 2012, 14:04:28 GMT »
Looks like the Coalition has caved in to the "outcry" - I wonder if the tax expenditure equivalent will be published as it should be.  One of the interesting aspects of the "debate" is how many donations appear to be only made because of the tax relief - curious logic.

STONE

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #7 on: December 19, 2012, 21:46:22 GMT »
Had a look at HRMC - looks like Gift Aid topped GBP 1 billion in the last year or so.  Couldn't make a lot of sense of the stats - probably just me - anyone fancy helping out on a little note?  also found that in the DfID accounts

http://www.dfid.gov.uk/News/Press-releases/2012/Provisional-UK-Official-Development-Assistance-as-a-proportion-of-Gross-National-Income-2011/

That  Gift Aid for Developmental Non-Governmental Organisations was GBP 65 million in 2011 up from 47 in 2010.

John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #8 on: January 31, 2013, 10:57:44 GMT »
Interesting article on abuse of Gift Aid in today’s Times (of London). 
For those with access:
http://www.thetimes.co.uk/tto/news/
http://www.thetimes.co.uk/tto/opinion/leaders/article3673376.ece
Interesting supporting video

Tax avoidance being discussed at the PAC today
http://www.parliamentlive.tv/Main/Player.aspx?meetingId=12458

John Short

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John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #11 on: December 05, 2013, 09:42:03 GMT »
Some recent reports from the NAO (UK) on Gift Aid and monitoring (or lack of it) by the Charities Commission.  Full reports can be found on http://www.nao.org.uk/search/type/report/

John Short

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #12 on: February 10, 2014, 05:00:32 GMT »
Recent PAC report on Gift aid

Summary
Gift aid is a valuable source of income for charities and there is general support for measures that will increase charitable giving. However, it is deeply concerning that HMRC has not collected data to evaluate whether the generous incentives on offer to individuals and companies are encouraging more people to donate more, as was intended, especially as Gift Aid currently costs £2 billion with £1 billion going to charities and £1 billion to individuals and companies. One of the unintended consequences of the current system of reliefs has been the scope for individuals and companies to try to exploit loopholes in it and Gift Aid is vulnerable in this respect. This type of abuse can give those reliefs and the charity sector a bad name if HMRC is not seen to be doing more to address the problem. Tackling abuse provides good value for money, with £44 saved in revenue for every £1 spent. Yet HMRC assesses £170 million was lost in 2011/12 through avoidance, fraud and error, with much larger sums at risk from marketed avoidance schemes. Whilst HMRC claims there is evidence that charitable donations by individuals has grown there is also evidence that despite the generous tax reliefs charitable support by corporations has gone down.

harnett

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #13 on: February 18, 2014, 08:21:45 GMT »
For sure some analysis on gift aid should be carried out - my gut reaction would be that HMRC does not benefit from the increase in donations - in my personal experience it appears that it simply increases the donation you are already willing to make.

But there again - the real issue here should be the tightening up of what constitutes a charity!  For example, "Tax breaks worth £31.2m a year to private hospitals operating as charities 'give unfair advantage and reduce competitiveness'" - http://www.theguardian.com/society/2013/jun/21/uk-health-firms-charities-tax-breaks

STONE

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Re: Tax Relief on Charitable Donations - should it be limited?
« Reply #14 on: February 09, 2018, 10:50:43 GMT »
It seems the National Audit Office in the UK has picked this up again
https://www.nao.org.uk/naoblog/gift-aid-and-the-tax-centre/

 

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