Treasury abandons reform of Gift Aid tax relief

It was decided at a meeting in early February between charities and the Treasury not to press ahead with changes. It follows two years of discussions over options that included removing income tax relief for donors who were higher-rate taxpayers and replacing it with an increase in the tax relief to be claimed directly by charities. The Treasury was deterred from making changes by its reluctance to impose any extra burden on the exchequer, coupled with a fear of creating winners and losers within the charity sector. The Treasury plans to continue regular meetings with the sector in a new forum, which met for the first time on 8th February 2010. Charities believe they are missing out on an important source of funding, as higher rate taxpayers fail to claim an estimated £250m of tax relief – the difference between basic and higher rate tax – or to redirect it to the charities. One option considered by the Treasury was the introduction of a “composite rate” that would allow charities to claim the same refund for higher rate and basic rate donors. A recent survey by the Treasury found that a “small but sizeable minority” of taxpayers – about 14 per cent – preferred a system where they could personally claim tax relief on their donations, possibly because they did not trust the government to give the money to charities. Charitable contributions were sometimes triggered by tax planning at the end of the financial year, and “beating the exchequer” was a big incentive for some donors. But for others, giving tax relief might reduce the “warm glow” they got from giving because it was associated with greed. Under the Gift Aid scheme, charities can reclaim an extra 25% in tax on every eligible donation by a UK taxpayer. Between 6 April 2008 and 5 April 2011, the government will also give UK charities an extra 3% of all eligible donations. This ‘transitional relief’ does not affect anyones personal tax position.