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.

Photo: Getty Images
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When will the government take action to tackle the plight of circus animals?

Britain is lagging behind the rest of the world - and innocent animals are paying the price. 

It has been more than a year since the Prime Minister reiterated his commitment to passing legislation to impose a ban on the suffering of circus animals in England and Wales. How long does it take to get something done in Parliament?

I was an MP for more than two decades, so that’s a rhetorical question. I’m well aware that important issues like this one can drag on, but the continued lack of action to help stop the suffering of animals in circuses is indefensible.

Although the vast majority of the British public doesn’t want wild animals used in circuses (a public consultation on the issue found that more than 94 per cent of the public wanted to see a ban implemented and the Prime Minister promised to prohibit the practice by January 2015, no government bill on this issue was introduced during the last parliament.

A private member’s bill, introduced in 2013, was repeatedly blocked in the House of Commons by three MPs, so it needs a government bill to be laid if we are to have any hope of seeing this practice banned.

This colossal waste of time shames Britain, while all around the world, governments have been taking decisive action to stop the abuse of wild animals in circuses. Just last month, Catalonia’s Parliament overwhelmingly voted to ban it. While our own lawmakers dragged their feet, the Netherlands approved a ban that comes into effect later this year, as did Malta and Mexico. Ringling Bros. and Barnum & Bailey Circus, North America’s longest-running circus, has pledged to retire all the elephants it uses by 2018. Even in Iran, a country with precious few animal-welfare laws, 14 states have banned this archaic form of entertainment. Are we really lagging behind Iran?

The writing has long been on the wall. Only two English circuses are still clinging to this antiquated tradition of using wild animals, so implementing a ban would have very little bearing on businesses operating in England and Wales. But it would have a very positive impact on the animals still being exploited.

Every day that this legislation is delayed is another one of misery for the large wild animals, including tigers, being hauled around the country in circus wagons. Existing in cramped cages and denied everything that gives their lives meaning, animals become lethargic and depressed. Their spirits broken, many develop neurotic and abnormal behaviour, such as biting the bars of their cages and constantly pacing. It’s little wonder that such tormented creatures die far short of their natural life spans.

Watching a tiger jump through a fiery hoop may be entertaining to some, but we should all be aware of what it entails for the animal. UK laws require that animals be provided with a good quality of life, but the cruelty inherent in confining big, wild animals, who would roam miles in the wild, to small, cramped spaces and forcing them to engage in unnatural and confusing spectacles makes that impossible in circuses.

Those who agree with me can join PETA’s campaign to urge government to listen to the public and give such animals a chance to live as nature intended.


The Right Honourable Ann Widdecombe was an MP for 23 years and served as Shadow Home Secretary. She is a novelist, documentary maker and newspaper columnist.