Denise Van Outen holds a cheque for Great Ormond Street Hospital. But can she claim back the tax? Credit: Getty
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How charitable tax deductions work

We've heard Osborne's plans to crack down on tax dodgers/ philanthropists (delete as appropriate), but what about higher rate payers and their charitable deductions?

The Financial Times is reporting that George Osborne is set to back down over proposals to limit the tax-deductability of charitable donations. The chancellor's planned cap on tax relief limited deductibles to the higher of 25 per cent of annual income or £50,000 per person, but the inclusion of relief given due to charitable donations in that cap sparked condemnation from all three parties and many charities.

As a result, Osborne is considering two new possibilities:

One plan is to have a separate limit on charitable donations of 50 per cent of a person’s income, allowing charities to claim tens of millions of pounds more in reliefs than under the current plan. Another is to let donors roll over any unused tax reliefs into future years if they are used for donations.

Treasury officials are locked in talks with representatives from the voluntary sector, and expect to make final decisions on how best to mitigate the effects of the planned cap in a few months. But they estimate raising the ceiling for charitable donations to 50 per cent would cost £40m, taking the overall savings from capping charities tax relief down to just £20m.

It is worth clarifying what the proposed changes are. Most of us are only aware of the most basic level of interaction between the tax system and charitable donations: gift-aid.

If a basic-rate taxpayer makes a donation, then a charity can claim back the tax paid on the money donated, boosting the value of the donation by 25 per cent (if the donor gives 80p, then the charity gets £1, which is the amount the donor had to earn to receive 80p post-tax income). There are no current plans to change that, and it has been an invaluable source of revenue for many charities.

If the donor is a higher- or top-rate taxpayer, however, tax relief kicks in for them as well as the charity. In addition to the 20 per cent gift aid, the donor can claim back the 20 or 30 per cent they paid on top of that, and count it against taxable income at the end of the year. So that 80p donation still earns the charity £1, but when the time comes to fill in their tax return, the donor won't have to pay more than basic rate tax on the money donated – they get 20 or 30p back. For a top rate taxpayer, that means that they are out-of-pocket by 50p, while the charity gets £1.

It is important to note that no-one makes money by donating to charity in this way. If the charity is a real one - and this whole affair was sparked because some people are apparently donating to bogus charities, which really is tax dodging - then the donor will always lose at least 50p in every pound the charity receives. It will indeed reduce the total tax they pay, but that reduction will necessarily be less than the amount they donate.

Despite that, there will be people using donations to avoid tax. It won't be rational, and it won't make them richer, but sometimes dodgers go to ludicrous lengths to not pay tax. Willard Foxton reported people "dodging VAT on cars by having them flown in at more cost than the tax". It is certainly believable that those who think like that would donate £2m to avoid paying £1m in tax; but it isn't going to be many.

Even for those who aren't donating out of blind desire to reduce their tax take, the cap will hit hard. Combined with other tax deductions, charitable donations may be enough to push the total tax-rate of a wealthy individual to less than 25 per cent. That is what is concerning charities. Under the proposed rules, the cost of donations to philanthropists with an already low tax rate will rise by 37.5 per cent. If donors react to that rise by donating less, then charities will be sorely hit.

The core issue at stake is whether or not charitable giving abdicates one's responsibility to pay for the machinery of state. On the one hand is the belief exemplified by Clement Atlee:

If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim.

On the other hand is the belief that by donating to charity, one has fulfilled their responsibility to pay a "fair share".

In the real world the argument hasn't touched upon this morality much, if at all. Instead, the matter is presented in far starker terms; either a focus on "total tax rate" to the exclusion of the reasons why that rate might be low, or a focus on the total income of charities, to the exclusion of the source of that money.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Four times Owen Smith has made sexist comments

The Labour MP for Pontypridd and Jeremy Corbyn’s Labour leadership rival has been accused of misogynist remarks. Again.

2016

Wanting to “smash” Theresa May “back on her heels”

During a speech at a campaign event, Owen Smith blithely deployed some aggressive imagery about attacking the new Prime Minister. In doing so, he included the tired sexist trope beloved of the right wing press about Theresa May’s shoes – her “kitten heels” have long been a fascination of certain tabloids:

“I’ll be honest with you, it pained me that we didn’t have the strength and the power and the vitality to smash her back on her heels and argue that these our values, these are our people, this is our language that they are seeking to steal.”

When called out on his comments by Sky’s Sophy Ridge, Smith doubled down:

“They love a bit of rhetoric, don’t they? We need a bit more robust rhetoric in our politics, I’m very much in favour of that. You’ll be getting that from me, and I absolutely stand by those comments. It’s rhetoric, of course. I don’t literally want to smash Theresa May back, just to be clear. I’m not advocating violence in any way, shape or form.”

Your mole dug around to see whether this is a common phrase, but all it could find was “set back on one’s heels”, which simply means to be shocked by something. Nothing to do with “smashing”, and anyway, Smith, or somebody on his team, should be aware that invoking May’s “heels” is lazy sexism at best, and calling on your party to “smash” a woman (particularly when you’ve been in trouble for comments about violence against women before – see below) is more than casual misogyny.

Arguing that misogyny in Labour didn’t exist before Jeremy Corbyn

Smith recently told BBC News that the party’s nastier side only appeared nine months ago:

“I think Jeremy should take a little more responsibility for what’s going on in the Labour party. After all, we didn’t have this sort of abuse and intolerance, misogyny, antisemitism in the Labour party before Jeremy Corbyn became the leader.”

Luckily for Smith, he had never experienced misogyny in his party until the moment it became politically useful to him… Or perhaps, not being the prime target, he simply wasn’t paying enough attention before then?

2015

Telling Leanne Wood she was only invited on TV because of her “gender”

Before a general election TV debate for ITV Wales last year, Smith was caught on camera telling the Plaid Cymru leader that she only appeared on Question Time because she is a woman:

Wood: “Have you ever done Question Time, Owen?”

Smith: “Nope, they keep putting you on instead.”

Wood: “I think with party balance there’d be other people they’d be putting on instead of you, wouldn’t they, rather than me?”

Smith: “I think it helps. I think your gender helps as well.”

Wood: “Yeah.”

2010

Comparing the Lib Dems’ experience of coalition to domestic violence

In a tasteless analogy, Smith wrote this for WalesHome in the first year of the Tory/Lib Dem coalition:

“The Lib Dem dowry of a maybe-referendum on AV [the alternative vote system] will seem neither adequate reward nor sufficient defence when the Tories confess their taste for domestic violence on our schools, hospitals and welfare provision.

“Surely, the Liberals will file for divorce as soon as the bruises start to show through the make-up?”

But never fear! He did eventually issue a non-apology for his offensive comments, with the classic use of “if”:

“I apologise if anyone has been offended by the metaphorical reference in this article, which I will now be editing. The reference was in a phrase describing today's Tory and Liberal cuts to domestic spending on schools and welfare as metaphorical ‘domestic violence’.”

***

A one-off sexist gaffe is bad enough in a wannabe future Labour leader. But your mole sniffs a worrying pattern in this list that suggests Smith doesn’t have a huge amount of respect for women, when it comes to political rhetoric at least. And it won’t do him any electoral favours either – it makes his condemnation of Corbynite nastiness ring rather hollow.

I'm a mole, innit.