Charity tax plans to be reviewed

Downing Street announces full consultation on implementation of tax relief caps, including those for charitable donations

Downing Street has opened the door for a climbdown over the charity tax by stressing that a full consultation on the tax relief caps will take place this summer.

A spokeswoman for No 10 said a "formal consultation on the implementation" was due in the next few weeks.

"It will be published in the summer," she said. "We want to explore ways we can introduce a cap … there are various options on the table." The consultation is expected to cover the capping of all tax reliefs, including charitable donations. The budget did set out plans for a consultation, but Downing Street went out of its way to stress the depth of the consultation.

The co-chair of the Conservative party, Lady Warsi, said she hoped the consultation would strike a balance.

However, the chief executive of the National Council for Voluntary Organisations, Sir Stuart Etherington, dismissed any suggestion that the government was making a concession by offering a consultation. "This consultation is old news, and will not happen early enough to stem the tide of alarm and uncertainty already hitting charities and donors. The government needs to act now."

Earlier, a Treasury minister confirmed the government was looking at measures to help prevent charities losing out as a result of the cap on tax relief for charitable giving, amid a clamour of protest from the third sector, church leaders and philanthropists.

David Gauke, the exchequer secretary to the Treasury, told the BBC Radio 4 Today programme that the Treasury accepted there would be an impact on charities, but insisted the government believed the wealthiest should not be able to "opt out" of paying income tax.

He said the overall cap on tax reliefs outlined in the budget was expected to bring in £300m of extra revenue, of which between £50m and £100m would come from the charities cap.

Gauke said the government would consider how to ensure charities did not suffer as a result, though he declined to specify details.

"We are not legislating for this today; this is something that will come in in next year's finance bill. We made it very clear from the very beginning that between now and then we were going to be working with charities to find ways to protect those charities that are particularly affected by large donations."

He added: "The broader point is that at the moment people are able to give to charities and indeed make use of other reliefs within the tax system that gets their rate down and the concern that we have [is] we don't think it is fair that people are able to get the rate down that low, even when the donations are to perfectly legitimate charities."

Responding to Gauke's comments, the chief executive of the Charities Aid Foundation, John Low, said: "This has been a shambles. The government simply has not thought this through."

"It is astonishing that the Treasury did not properly assess the impact on charities of their new tax relief cap before announcing this damaging measure in the budget."

Low said hundreds of charities opposed the measure and philanthropists were "demoralised by being branded tax dodgers".

"We are not asking the government to drop caps on all tax relief. We are saying that ministers should think again about extending that cap on tax reliefs to include charitable donations. If there is evidence of abuse then by all means put appropriate measures in place, but a blanket cap throws the baby out with the bathwater."

Zac Goldsmith, a backbench Conservative MP, warned that if ministers did not produce a "more intelligent measure which deals with the loopholes", they would be remembered as the government that "destroyed the charities sector".

The Financial Times reported on Monday that the chancellor, George Osborne, was considering two options in particular to limit the damage done by his proposed cap on tax reliefs of whichever is higher: 25% of a person's income or £50,000.

One plan is to have a separate limit on charitable donations of 50% of a person's income, allowing charities to claim tens of millions of pounds more in reliefs than under the current plan. Another is to let donors roll over any unused tax reliefs into future years if they are used for donations.

The Treasury has been on the defensive for more than a week over plans announced in the budget to cap the relief philanthropists can receive for charitable giving. Billed ahead of the budget as a populist tycoon tax, it has since gone disastrously wrong, with the Conservative press reporting the plan as an assault on charitable giving.

In an effort to get back on the political front foot over the budget, the Treasury laid out the extent of tax avoidance by Britain's super-rich. It published figures showing that almost 1,000 UK taxpayers earning more than £1m a year have a tax rate of less than 30% of their income. Of the 200 taxpayers earning more than £10m a year, 12 are paying less than 10% in tax.


Patrick Wintour, political editor

The GuardianTramp

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