The TUC report 'The Missing Billions: The UK Tax Gap', published this morning has a number of recommendations in it for both stopping abuse and simplifying the tax system. One that the TUC have highlighted today is a plan to prevent the wholly unwarranted tax relief given on charitable donations to higher rate tax payers, which HS been subject to abuse over time, and to at the same time massively simplify the administrative burden on charities and boost their income. What might fairly be called a 'triple whammy'.
As the TUC put it:
The TUC is today calling for the replacement of the current system of tax relief on gifts made to charity, to simplify bureaucracy for charities and stop the abuse of charitable tax relief through tax avoidance schemes.
The TUC want charitable tax relief replaced by an automatic assumption by the Treasury that all individual donations are made out of income taxed at the basic rate, with tax relief paid accordingly. This would both simplify bureaucracy for charities, as they would no longer need to gather evidence that donations come from tax payers, and increase their funds as relief on donations currently made through routes such as street collections cannot be claimed.
This tax assumption would be paid for by ending the tax relief that higher rate tax payers can claim for themselves on their charitable donation. Recent research by the Treasury shows that this is not an effective incentive to make charitable donations. It would also end any potential for abuse of charitable tax relief as part of creative tax avoidance schemes.
It's never my aim to say 'look, there's a problem' and leave the issue alone. It's always my aim to show that there are better ways of doing things. This is one such way.
I sincerely hope it gets support: thousands of charities and as many charity treasurers will welcome this with open arms, and higher rate tax payers really can't complain. They were after all intending to help charities with their gift.
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Tell me, do you ever bother with tedious tasks like substantiating your assertions? You describe higher rate tax relief as wholly unwarranted without any supporting evidence: the Sweetman article refers to a small qualitative study that HMRC conducted several years ago, and the Vantis scam proves nothing – to use it as an argument for abolishing higher rate tax relief is like saying banks should be abolished because they are sometimes robbed.
Try looking at the simple logic: abolishing tax relief at the higher rate is effectively taxing the charity. If I give £500,000 to a charity gross, then either the tax man takes nothing (apart from the employer’s National Insurance contribution at the front end) under the current system, or he takes £90,000 under your proposed system. Who loses? Not me, as I give what I can spare anyway. And if I can’t find a charity that will spend my money more effectively than HMG, then I haven’t been looking very hard.
David
What an extraordinary thing to say! I’ve just published an original report, riddled with new research and statistical findings and yet apparently I never substantiate my assertions. Respecfully, you can accuse me of a lot if you wish: you will always fail on this point. It’s your problem if you cannot be bothered to read my work.
Your problem too if you failed to realise that the HMRC report I refer to was published last year.
Your problem if you don’t realise that the Vantis scam was just the tip of an iceberg of abuse.
And your problem that you clearly do not understand the way the tax system works for charities, which is that they never get the benefit of the higher rate tax relief, so my system cannot ever impose a tax on the charity, it just denies tax relief to the higher rate tax payer who cannot possiby justify enjoying a relief for a gift to charity which the charity in question has not received in equal part.
So, again, respectfully, not one iota of what you have to say bears any relationship to reality. In my opinion, of course. You’re entitled to differ. But it would be nice to see a reasoned argument in support of your case.
Richard
Sorry Richard you can’t get away with that. First, I was referring to when the research was conducted, not when it was published. Check back with Sweetman’s article. Second, I’m sure there is plenty of abuse, but no doubt as an accountant you will be lobbying for your fellow-practitioners to be struck off for it – it wouldn’t be possible without them. Have a look at the way the US courts went after the accountants and lawyers for their part in tax shelter scams. And third, I think I do understand the way the tax system works for charities. Just because the taxman does not pay them the money direct, doesn’t mean they get no benefit. Can you please explain which bit of my sample calculation is wrong? My charity now has £500,000 instead of the £410,000 it would have under your system. Am I really that unusual in grossing up my gift for the tax relief I claw back? It means the charity gets the money in the first place and I then have to claim the relief back, rather than me just giving the smaller amount.
Incidentally, I don’t think you would ever persuade a government to give tax relief to charities across the board, at least as long as private schools still have charitable status.
Finally, which is your original report? I didn’t see any support for your arguments in your blog, just some stuff about the TUC – surprisingly I agreed with much of the rest of their report (did you write it for them?) but for this bit they relied entirely in the Sweetman article, which is a bit circular, and really doesn’t prove anything. Any idea how big their sample was relative to the million or however many higher rate tax payers?
BTW I haven’t come across reCAPTCHA before – seems like a great idea.
David
I wrote the TUC report.
I wrote this recommendation.
The recommendation is not based on the Sweetman article or on HM Revenue & Customs research. It is based on original thinking and research. HM Revenue & Customs research shows almost no one is aware of how tax relief to charities works, so yes you are exceptional in grossing up. Just about no one does. So you are not able to use yourself as an example to prove me wrong.
Richard