I have already referred to the quite extraordinary article by Simon McKie in the Church Times last week, and its absurd endorsement of tax avoidance - using an ethic that should shame the ICAEW who he has represented. But this article has more to offer in showing the workings of the tax avoiders mind.
There has been much outrage from philanthropists about the government's description of them as tax avoiders. McKie, however, confirms that is exactly why many of these people give to charity, saying:
Yet a country in which the citizens paid only the tax that they thought was morally correct would be bankrupt. Maintaining public life is possible only if most people recognise that they should pay the tax that the law demands, even if they regard that law as irrational and unfair.
This is not to say that we have no further duty to contribute to the public good. What we do not have is a duty so to structure our transactions as to maximise the slice of our wealth appropriated to be spent at the Government's discretion. Having fulfilled our duty to obey the law, we must consider our duty to contribute to others' good in the most effective way possible.
Many are deeply sceptical about the efficacy of Government spending. A wealthy man who chooses to give £1 million to a charity decides to trust the charity to spend that amount of his wealth for the good of others rather than to allow the Government to spend half of it. That does not seem to me an irrational preference.
That is tax avoidance.
And that's also the opinion I very clearly heard John Low of the Charities Aid Foundation expressing last week - whose antagonism towards government spending could not have been clearer.
so let me reiterate - we have a welfare state because charity very clearly failed, and would fail again if it had the role these people want, at massive social cost to the people of this country.
What they are saying is charity is a way to block the role of government - that they refuse to subscribe to.
That is tax avoidance. But it's worse than that - it's using charitable structures to deny resources to the people of this country in pursuit of these people's political beliefs.
If you want a reason why higher rate tax relief for charitable giving should go this is another very good one.
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I still don’t understand why any tax relief should be available on charitable donations even at the basic rate, could you explain the reason for the distinction please Richard.
The principle is that you’ve given your income to another person – so it is theirs, not yours, for tax purposes.
And charities don’t pay tax on their income.
What you’re challenging is whether the latter should be true.
That is not the principle.
Charities, as donees, do not pay tax on their income in their own right.
This is quite different from the government believing that money donated to charity should not be taxed in the donor’s hands.
Now you can argue whether either or both of those should be the case. But it’s not the reason for donor’s tax relief.
i do not agree
The principle is the income is their’s in which case it cannot be taxed inthe donor’s hands
But it is a princiole thar can be changed
“A wealthy man who chooses to give £1 million to a charity decides to trust the charity to spend that amount of his wealth for the good of others rather than to allow the Government to spend half of it.”
A fundamentally dishonest statement on two counts, both of which the writer must be abundantly aware of:
1 The government gives an amount equal to a quarter of the donation to the charity, regardless of whether or not the donor is a higher rate taxpayer. Therefore, it should be “rather than to allow the Government to spend a quarter of it.”
2 The other quarter the government spends goes into the pocket of the donor, not the charity. In other words, the rest of the electorate had to fund a discount on a higher rate taxpayer’s gift through either tax rises or service cuts.
Any religion that welcomes such dishonesty and hypocrisy into its fold dishonours and discredits itself.
Er, no. The statement is correct. When a higher-rate donation is made the Government in effect pays ALL the tax due on the amount of that donation to the charity. This is because the donor pays net of basic rate tax but INCLUSIVE of higher-rate tax. Higher-rate relief to the donor is a recognition by Government that the higher-rate tax amount has been paid directly to the charity instead of to Government. Therefore the Government has, by forgoing higher-rate tax on that donation, effectively paid both the basic rate amount (directly) AND the higher-rate amount (indirectly) to the charity. In the case of a top rate tax payer, this is 50% at the moment.
Respectfully, that is sophistry
And as a matter of fact the higher rate tax rebate does not go to the charity.
The charity is indifferent as to the tax rate of the donor if they are a tax payer
As such you cannot claim they get the higher rate rebate.They don’t
I didn’t say that the rebate went to the charity. I know it doesn’t. Any rebate, or reduction in tax due, goes to the donor. But that is “compensation” for the higher-rate tax in effect paid by the donor to the charity, and therefore amounts to the Government indirectly paying that amount to the charity.
I had an extensive discussion on this very subject recently on the painting with numbers website. I argued, as you do elsewhere, that the effect of the higher-rate tax relief is to reduce the donor’s contribution, and the website author argued that the effect is to increase Government subsidy to the charity. Actually these are exactly the same effect. If you look at it from the charity’s point of view, for the same TAX-FREE amount donated, the charity benefits more if the donor is a higher rate taxpayer than if the donor is a basic rate taxpayer. This is transparent to the charity, because their claim is still at basic rate: the rest is effectively paid to them by the donor in addition to the tax-free amount and reclaimed from HMRC as a rebate or a reduction in tax due. In practice people generally don’t adjust their donations for the tax element, so the charity will actually get the same amount regardless of the tax rate of the donor. But because the donor is compensated for the higher-rate tax element within the donation, the effect is that the Government pays part of the donation to the charity and the donor’s tax-free contribution is reduced. I know you know all this, but for the sake of others on here I thought it was worth explaining.
I think I follow your logic
I’m not sure I agree
But i think were clse enough not to worry!
If the additional relief for higher rate tax payers actually went to the charity I could believe that there was some purpose to it. But as you have so eloquently written here charity tax relief is a tax avoidence charter, as spending for the public good is not decided by the public but by private decision makers.
It should never be the case that lower rate tax payers must subsidise the donations of richer individuals, it is a highly regressive tax on private spending decisions.
So I take it we will be seeing massive support from you, Richard, in seeking toatop the Corporate Snake which is organised religion from evading their liabilities to society by being exempt from tax…….
I’m not sure why you think I will be doing that
I have argued for charitable tax relief
I have also argued for better regulation of charities
I remain of the view that religious organisations are charitable
In that case they’re not evading
Richard, I note this report from the OECD – The average tax burden on earnings in OECD countries continues to rise, 25th April 2012 (http://www.oecd.org/document/8/0,3746,en_21571361_44315115_50165640_1_1_1_1,00.html?rssChId=34897). Perhaps we should be asking these churchmen if they feel it is ‘moral’ that the average worker (their parishioners in many cases) should be taking on the burden of paying tax; paying more tax on average than these giant corporations.
“The principle is the income is their’s in which case it cannot be taxed inthe donor’s hands”
Non sequitur. Although I can see why you’re saying it: to make it look like someone is giving away their income to a tax exempt person so you can make it look like “tax avoidance”.
The legislation is quite clear: charities are exempt from paying income tax on donations receivable.
It is also quite clear, as a separate matter, that donors are exempt from paying income tax on the donations they make.
Two quite different chapters, sections etc.
Does this discussion have any point?
If so, what?
Richard you make a very bold statement “we have a welfare state because charity very clearly failed”. Disregarding all the sense that has been talked about the tax aspect of charitable giving, there is no doubt that in a great many cases we have charities because the state has very clearly failed. You may think that the state has no business getting involved in women’s refuges, the provision of palliative care in hospices, the fight against female genital mutilation, forced marriages, miscarriages of justice. But there are a whole host of areas of where there are no votes to be gained and where charities have stepped in to the gap left by the state and carry on work which makes our country a better and more “civilised” place.
I argue that charities do not do this because the state has failed – but because it has not yet realised it needs to do so
Please read the argument
you mean because the state has failed to accept its responsibilities. The hospice movement predates the NHS by several decades. I rest my case
Sorry – education also pre-dates state provision
Being a pedant does not make your case
To extrapolate from an isolated issue to the general is absurd
Just imagine the NHS provided by charity – it’s impossible. Then imagine the impact on the hospice movement
The stop being absurd
Strictly, Richard, I don’t think donations to bona fide charities are tax avoidance as such, since the donors are using a relief for the purpose for which it is intended. It becomes tax avoidance when the charities are bogus and the donor benefits indirectly in some way through his/her interests in those charities.
The beneficiaries of higher-rate tax relief on bona fide donations are the charities, not the donors, as I’ve explained in my comment to Nick James. The fact is that at the moment Parliament chooses to allow donations to charity to be made free of tax, whatever the tax status of the donor. The Government’s proposed tax relief cap undermined this principle by the back door.. I’d prefer there to be an open debate on whether or not charitable giving should be regarded as an ALTERNATIVE to paying tax, as it is at the moment, or whether charitable donations should be regarded as ADDITIONAL to the civic duty of paying tax. For the record, I support the second of these and (like you) would like to see tax relief restricted – actually to slightly less than basic rate, because I don’t think basic rate tax payers should be able to give to charity tax-free either. But this would be a very significant income loss to charities and it is not surprising that they are fighting the idea tooth and nail.
Frances
I think you have the tax releif wrong
And in most cases I’d agree there is no avioidance – and can’t me. McKie suggested otherwise – so I frew attention to it
Broadly I agree with your conclusions – except I think my proposal would increase charities’ income
Richard
“A wealthy man who chooses to give £1 million to a charity decides to trust the charity to spend that amount of his wealth for the good of others rather than to allow the Government to spend half of it. That does not seem to me an irrational preference.”
“That is tax avoidance.”
Even by your own defintiion of tax avoidance, that is wrong.
If that is tax avoidance, then so is opening an ISA. Why do people open an ISA other than because they trust themselves to spend the interest that would otherwise be taxed in an ordinary deposit account better than the government could do? After all, that is not an “irrational preference” either.
You also make the mistake of thinking that McKie speaks for all wealthy donors. I don’t know that, and nor do you, so best not to make that assumption.
I have made clear I do not usually think giving to charity is avoidance
I posted the comment because McKie gave example of how it would be. Surely you got the point?