Philanthropists aren’t tax dodgers

By Iona Joy 13 April 2012 2 minute read

Dame Stephanie Shirley sold her successful computer business and then poured tens of millions of pounds into tackling the problem of autism. She invested in research into its causes, she founded schools for children with autism, and her funding pioneered services for adults.

Hardly the profile of a tax dodger. Yet it’s people like Dame Stephanie that are most likely to be affected by the government’s proposed cap on tax relief. Let’s be clear though—donors weren’t even personally benefitting from the tax relief in the first place. In order to use the tax relief, the donor to give the money away—which meant the donor no longer held the money for his or her use. Or does the government believe that cash behaves like sub-atomic particles and can be in two places at once?

If the government thinks that the rich are funding bogus charities abroad which then channel the money back to the ‘donor’, then it should investigate such abuses and use the law to bring perpetrators to justice. Charities here in the UK are regulated by the Charity Commission, and charities with income over £25,000 submit audited accounts. Defrauding a UK charity is quite difficult and may result in criminal prosecution so I doubt tax lawyers were recommending clients exploit charities as a tax loophole.

It could be argued that a donor giving the same amount of money is better off, net, with the full tax relief than the cap on the tax relief. In principle, that is true. But I doubt there are many donors giving away large sums do so without considering the tax effect of their donations on their overall wealth. So without the full tax relief many will just give less.

I’m no tax expert, but I calculated that an imaginary donor with a nice £1m bonus to dispose of could give away only two-thirds of what he would have given before the tax relief. He had to retain a third for the tax man, unless he wanted to fund the tax bill from elsewhere. NPC has just been told by a charity that one of their major donors told them that the cap on tax relief will affect his donation to the tune of 30 to 40%.

In 2009/2010 £780m of donations to charities came from donations of over £1m. So very conservatively, even a 20% reduction on the £780m figure means £150m less for charities. And this doesn’t include the effect on a myriad of decent-sized donations below £1m.

These people are generous, and fund charities to help others. We need more wealthy people to join this generous club. Meanwhile charities doing good are struggling on all fronts. Government funding is down, trusts and foundations have less income to give away, donations from the general public are under pressure. And demand for charity services are up—for the first time in 35 years a charity in East London told us recently they were distributing food parcels to people in extreme poverty. And now this. What has happened to David Cameron’s vision of Big Society?

So this is why NPC has signed up to the ‘Give it back George’ campaign with our colleagues from CAF, NCVO, ACEVO, CAF and many other charities.