Charity taxation: Making more sense out of giving

The Inland Revenue draft regulations for the 2000 Finance Bill will be issued any day now and there might be one or two unexpected stings in the tail. These are not because the Chancellor has suddenly lost his philanthropic nerve, but simply because some Treasury ministers may not be quite as up to speed on how the public gives as you believe.

Government officials have made it plain that they will listen to concerns about operation of the new reliefs and charities had better make sure they are heard before it is too late.

First there is Gift Aid. Of course, removal of the £250 Gift Aid limit is great news, as is the fact that all income and capital gains tax, paid by donors may be relieved. So why is it necessary to place a ‘YOU MUST HAVE PAID SUFFICIENT TAX’ warning notice on donation forms or have charity fundraisers recite something similar over the telephone.

How does this complement the warm feeling we want to give donors when they give you their money? Having there eyes drawn to the small print as if it was a loan application. How many would be members of the Giving Generation will that turn off?

And, what is it all for? I don’t know many people who give to charity that aren’t in the tax bracket. In fact, I don’t know of any. Surely, the vast majority of people who can afford to give to charity, earn enough to pay tax. So, is making charities go through all the fuss of verifying the fact worthwhile?

From April, the extra tax reclaim is worth another 28 per cent to charities. Knock off 10 per cent for those who don’t like signing forms, and five to cover the extra cost of administration, and half the benefit has gone.

And, there’s another thing. Why is it that if you give via the Internet you don’t have to sign a form, and if you make a donation over the telephone you don’t have to sign a form but, if you give in person or by mail, you do. The official answer is that the Internet and telephones don’t use paper and, if there is a piece of paper available, it should be signed. Pardon!

Then there is Payroll Giving. Forget the fact that the three year 10p in the pound bonus won’t effectively start until later this year after the publicity kicks in. It looks like we’ll have to live with that. What I don’t understand is why the Government cannot allow membership benefits for payroll givers.

What better way to involve the young and those with families – supposedly the main targets for payroll giving – than by allowing them to pay a subscription to the National Trust or other cultural institutions. Or, receive some small reward like a magazine or newsletter which keeps them in touch with their chosen cause. That must make sense.

And why not extend the number of charities where entrance fees do not count as a benefit. What about museums, galleries and the like. I seem to remember the Government saying that they were going to make these all free anyway. Well, if that idea has slipped off the agenda, at least we might get a bit of relief from tax.

I expect the new benefit allowances for Gift Aid will create a major problem. Who decides what is a benefit and, indeed, what it is worth? The Inland Revenue believe that from April, when the new Gift Aid rules start applying to old deeds of covenant, it is only putting down in black and white what charities did before. But nobody seems to have told the charities, and many already give membership benefits which are worth a lot more than £25. A 25 per cent allowance on donations up to £400 and £100 thereafter would be much more reasonable.

The Government has declared itself ready to listen. Let’s make sure that enough charities shout loud enough for them to hear. Forget the ‘must pay tax health warning’ on Gift Aid. Forget the need for a signature on forms. We need more sensible benefit rules and have them extended to Payroll Giving too.

Stephen Burgess is a leading commentator on the charity tax regime and has served on a number of working groups involved with the review. He is also a member of the Public Sector and Not for profit Subcommittee of the Accounting Standards Board and a judge for the Charity Annual Report and Accounts Awards.

Previously, Stephen was Financial Director at Help the Aged, Chairman of the Charity Finance Directors’ Group, Vice Chairman of the Charities Joint Fiscal Working Group and founder of the Charities Consortium.

Related reading