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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In her first interview of 2017, I pressed the Prime Minister for Brexit clarity

My week, including running out of cat food, reading Madeleine Thien – oh, and interviewing Theresa May on my show.

As the countdown to going live begins in your ear, there’s always a little rush of adrenalin. Especially when you’re about to launch a new Sunday morning political programme. And especially when you’re about to conduct the Prime Minister’s first interview of 2017. When you hear the words, “Cue Sophy,” there’s a split-second intake of breath – a fleeting moment of anticipation – before you start speaking. Once the show is under way, there’s no time to step back and think; you’re focused on what’s happening right now. But for that brief flicker of time before the camera trained on you goes live, you feel the enormity of what’s happening. 

My new show, Sophy Ridge on Sunday, launched on Sky News this month. After five years as a political correspondent for the channel, I have made the leap into presenting. Having the opportunity to present my own political programme is the stuff that dreams are made of. It’s a bit like having your own train set – you can influence what stories you should be following and which people you should be talking to. As with everything in television, however, it’s all about the team, and with Toby Sculthorp, Tom Larkin and Matthew Lavender, I’m lucky enough to have a great one.

 

Mayday, mayday

The show gets off to a fantastic start with an opportunity to interview the Prime Minister. With Theresa May, there are no loose comments – she is a cautious premier who weighs up every word. She doesn’t have the breezy public school confidence of David Cameron and, unlike other politicians I’ve met, you don’t get the sense that she is looking over her shoulder to see if there is someone more important that she should be talking to.

In the interview, she spells out her vision for a “shared society” and talks about her desire to end the stigma around mental health. Despite repeated pressing, she refuses to confirm whether the UK will leave the single market as it leaves the European Union. However, when you consider her commitment to regaining control of immigration and UK borders, it’s very difficult – almost impossible – to see how Britain could remain a member. “Often people talk in terms as if somehow we are leaving the EU but we still want to kind of keep bits of membership of the EU,” she said. “We are leaving. We are coming out. We are not going to be a member of the EU any longer.” Draw your own conclusions.

 

Women on top

This is probably the kind of thing that I should remain demurely quiet about and allow other people to point out on my behalf. Well, screw that. I think it’s fantastic to see the second female prime minister deciding to give her first interview of the New Year to the first woman to front a Sunday morning political show on television. There, I said it.

 

Escaping the bubble

In my view, every journalist should make a New Year’s resolution to get out of London more. The powerful forces that led to the political earthquake of 2016 came from outside the M25. Every week, I’ll be travelling to a different part of the country to listen to people’s concerns so that I can directly put them to the politicians that I interview. This week, it was Boston in Lincolnshire, where the highest proportion of people voted to leave the European Union.

Initially, it was tricky to get people to speak on camera, but in a particularly friendly pub the Bostonians were suddenly much more forthcoming. Remain supporters (a minority, I know) who arrogantly dismiss Leave voters as a bunch of racists should listen to the concerns I heard about a race to the bottom in terms of workers’ rights. Politicians are often blamed for spending too much time in the “Westminster bubble”, but in my experience journalists are often even worse. Unless we escape the London echo chamber, we’ll have no chance of understanding what happened in 2016 – and what the consequences will be in 2017.

 

A room of one’s own

Last December, I signed a book deal to write the story of women in politics. It’s something I’m passionate about, but I’ll admit that when I pitched the idea to Hachette I had no idea that 2016 would turn out to be quite so busy. Fitting in interviews with leading female politicians and finding the time to write the damn thing hasn’t been easy. Panic-stricken after working flat out during the EU campaign and the historic weeks after, I booked myself into a cottage in Hythe, a lovely little market town on the Kent coast. Holed up for two weeks on my own, feeling a million miles away from the tumultuous Westminster, the words (finally) started pouring on to the page. Right now, I’m enjoying that blissful period between sending in the edited draft and waiting for the first proofs to arrive. It’s nice not to have that nagging guilty feeling that there’s something I ought to be doing . . .

 

It’s all over Mao

I read books to switch off and am no literary snob – I have a particular weakness for trashy crime fiction. This week, I’ve been reading a book that I’m not embarrassed to recommend. Do Not Say We Have Nothing, by the Canadian author Madeleine Thien, tells the haunting story of musicians who suffered during the Cultural Revolution in China. It’s also a chilling warning of what happens when anger towards the elite is pushed too far.

 

Political animals

However busy and exhilarating things are at work, my cat, Ned, will always give me a reality check. In the excitement of the first Sophy Ridge on Sunday, I forgot to get him any food. His disappointed look as he sits by his empty bowl brings me crashing back down to earth. A panicked dash to Sainsbury’s follows, the fuel warning light on all the way as I pray I don’t run out of petrol. Suddenly, everything is back to normal.

“Sophy Ridge on Sunday” is on Sky News on Sundays at 10am

Sophy Ridge is a political correspondent for Sky News.

This article first appeared in the 12 January 2017 issue of the New Statesman, Putin's revenge