cap on charitable giving?

Well, I don’t intend for this blog to get political, but I would like to draw your attention to this website which discusses the government’s proposed cap on tax tax relief for charitable giving. These proposals would appear to be inconsistent with any notion of a “Big Society”.

As an accountant specialising with charities and social enterprises, it did annoy me to see reports in the media that wealthy individuals can magically reduce their tax bill by giving to charity. It is true that if an individual donates to charity that they pay less tax. For example,  if an individual who pays tax at the basic rate (20%) donates say £80, the the tax which has been paid by the individual on this donation which is £20 can be claimed by the charity from the government.

To try and explain this in a different way, if an individual earns £100 and pays tax at 20%  then £20 tax is paid, leaving them with £80.

The individual pays the £80 to a charity, the charity can then claim £20 off the government, the net result being that the charity receives all the £100 earnt by the individial. The individual looses £80, the government looses £20 and the charity gains £100.

Hopefully this simple example helps to demonstrate that giving to charity is not a way of cheating the system and does not benefit the individual financially when done correctly.

There may be a small number of bogus charities established by wealthy individuals who donate large sums of money to the charity which then uses  the money donated (and the tax claimed from the government) in the interests of the individual. This is clearly illegal and  if this does occur should be stopped.