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UK Explores Incentives For Charitable Giving

by Robert Lee, Tax-News.com, London

31 December 2010


The UK government published on December 29 a Green Paper with the aim of starting a national debate on society’s attitudes to giving. Both Conservative and Labour MPs, however, have been critical, saying that charities should not have been hit with the value-added tax hike and that people are already struggling with too high taxes.

The Green Paper proposes a new role for government as a facilitator of giving, making it easier for philanthropists, volunteers and charities to form partnerships. The government wants to develop low-cost and effective ideas for large organizations to support charities. One idea is to give publicity to partner charities on government websites. Another is to open up buildings that are underused to charitable activity.

Other major policy proposals in the paper include a GBP50m Community First Fund that will match contributions from donors to encourage the building up of local endowments; a GBP10m Volunteer Match Fund to double the benefit of private donations to voluntary projects; harnessing new technology to make donations; encouraging a new focus on reciprocal giving, such as setting up an eBay-style online community where people can trade time; a government review of the relationship between financial incentives and giving; and support to encourage charitable giving in schools.

Ideas for harnessing new technology include working with mobile phone companies to encourage charitable phone applications. The Green Paper also suggests talking to banks about donations through ATMs and widening access for people to make small charitable donations when paying for goods by plastic cards.

Francis Maude, Minister for the Cabinet Office, said: “This Green Paper offers practical common sense ways we can boost charitable giving. And it’s just the start. We think government can also have a new role, bringing people together to find new ways to support charitable and voluntary action and highlighting the excellent work that is happening already.”

“We are arguing for new social attitudes that celebrate giving. Talking about what we do for good causes is often seen as vulgar. But sharing experiences can inspire others. Giving is too often caricaturized as worthy and selfless, a one-way street, but there’s nothing wrong with doing things for each other and repaying kindnesses. If we can agree as a society the values that underpin helping each other we can unlock huge potential for a stronger, bigger society.”

John Redwood, Conservative MP, says: “The trouble is the past government did so much to nationalize good causes and charitable activity. With marginal tax rates of 52% on the high paid, a growing Overseas Aid budget, a strictly bureaucratic and highly regulated charitable sector and a media based rather than a good works based culture in some charitable fields there is a lot to change if the government is serious about wishing to transfer more of this work from public sector to charities."

“If the government wants instead the extra charitable giving to be on top of the higher taxes and expanded public sector it will find that difficult to achieve at a time of squeezed living standards”.

The Labour Party has attacked the Coalition for not protecting charities from VAT increases and so forcing many to make major cutbacks.

Gift Aid is another thing looked at in the Green Paper for possible change. Currently under the Gift Aid scheme, charities can reclaim basic rate tax (20%) from HM Revenue and Customs on the donation’s "gross" equivalent – the amount before basic rate tax was deducted. This means that GBP10 donated using Gift Aid is worth GBP12.50 to the charity.

Higher rate taxpayers can claim the difference between the higher rate of tax (40%) and the basic rate of tax on the gross value of the charitable donation. Therefore a donation of GBP100 would result in the charity receiving GBP125, allowing the taxpayer to claim back 20% of GBP25 on their self-assessment return. However, according to the Institute of Fundraising, while most higher-rate taxpayers believe they can reclaim the difference between the basic and higher rates of tax for themselves, in practice the government keeps 40% of this sum for itself.

“As even this can only be reclaimed by the minority of donors who complete a self-assessment form, very few people claim back higher rate tax relief on anything but the largest donations,” the Institute said.

Nick Aldridge, CEO, of MissionFish, in his contribution to the Green Paper, suggests that: “HMRC should explore simple changes of policy that would enable a far wider range of donations to be tax‐effective. The single‐click, impulse donations of the online world are far removed from the form‐filling culture demanded by Gift Aid regulations. Simple innovations such as enabling phone numbers or email addresses to be used as unique identifiers for donors would spectacularly simplify the process of claiming Gift Aid on many digital donations. Allowing charities and companies to offer a 'universal' Gift Aid declaration, in which donors could enable Gift Aid to be claimed across all eligible charities, would give the fundraising world the basis for exploring a more efficient and better adopted system”.

TAGS: tax | tax incentives | United Kingdom | tax planning | tax breaks | charities

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