Today we have seen another ‘report’ (see Civil Society and Third Sector) on charities by the True and Fair Foundation. There isn’t any point dwelling on the report itself, but it is a reminder that charities need to do more to explain and defend tax reliefs, such as Gift Aid.
The True and Fair Foundation refer to Gift Aid as a form of government funding for charities according to the media reporting. It also apparently recommends that Gift Aid is restricted to the percentage of a charity’s income spent on charitable activities. Although this is a nonsense proposal, True and Fair Foundation are not the only people to make a mistaken connection between Gift Aid and government subsidy.
The Member of Parliament for Tonbridge and Malling, Thomas Tugendhat, said in the Public Bill Committee debate on the Charities (Protection and Social Investment) Bill:
“…regarding the element that comes from the taxpayer – the 25%, the gift aid or whatever it happens to be – that break is money taken by force”.
Similar confusion was expressed by the Editor of Money Week, Merryn Somerset Webb, when she said:
“We give [charities] tax relief on all their income from donations and investment returns, and capital gains tax relief too. And of course, we give [charities] Gift Aid.”
The idea that taxpayers are unwittingly subsidising charities through Gift Aid is becoming a regular attack and a toxic one.
What all of this boils down to is a misunderstanding of what Gift Aid is and the principles of charity tax. Gift Aid is not a tax relief for charities, although we benefit from it. It is a tax relief for individuals.
The idea is a simple one – money that is given for public benefit shouldn’t be taxed.
If I give £5 to Charity A, from which I do not receive any personal benefit (or merely incidental personal benefit) and that is delivering public benefit as defined by parliamentary statute, then why should I pay tax on it?
Gift Aid is merely the basic rate tax that the individual would have paid, being passed to the charity in order to boost the value of their donation. It empowers donors, and supports their choices. Yes, charities benefit from this process because they receive the tax, but it is not a subsidy from government. Government is merely administrating it. It is driven by the choices of individuals and their desire to support an organisation.
They don’t even have to claim Gift Aid, if they don’t want to. It is purely optional. There is no element of force.
What those that support capping or reducing Gift Aid are really calling for, therefore, is a tax rise on donors. Without this tax relief, individuals would have to give more money to charity in order for their donation to have the same impact as under Gift Aid. That doesn’t sound fair.
The extra power that Gift Aid injects into donations increases the amount of work that charities can do and has wide ranging benefits for society.
We cannot rely on others to do the explaining for us. At a time when charities are under significant media pressure, we must make sure that misguided assertions about Gift Aid (and business rates for that matter) are consistently rebutted. Otherwise, there is a danger that tax reliefs such as Gift Aid could become a thing of the past.
Charities should get their lines clear on Gift Aid and make sure that no misinformation about Gift Aid goes unchallenged.
If you’d like more information about Gift Aid please contact CFG (email@example.com).