Analysis: New HMRC figures paint an unclear picture

David Ainsworth looks at whether wealthy donors are using Gift Aid to avoid paying tax

HMRC
HMRC

Earlier this year, when proposals were made in the Budget to cap the amount of tax relief that could be claimed by major donors by using Gift Aid, the government argued it was only right that everyone should pay a fair share of tax.

Now, following a request made by a voluntary sector worker under the Freedom of Information Act, HM Revenue & Customs has revealed that only 340 wealthy people used Gift Aid to reduce their tax liabilities to less than 10 per cent of their gross income.

The FoI request from Grant Addison, operations manager at the Woodlands Church, asked HMRC to say how many people on "very high incomes" had used Gift Aid to pay "little or no tax" in the year 2010/11.

HMRC, which at first declined to reveal the figures but then relented, took this to mean people earning more than £150,000 who reduced their tax liabilities to less than 10 per cent while claiming no tax relief other than Gift Aid. About 1,200 people brought their tax bills down to less than 10 per cent by claiming Gift Aid along with other tax reliefs, HMRC said.

Most donors are not generous enough to fall into HMRC's definition every year, the figures show. Only about 20 people have made such gifts in four of the past five years.

To reduce their tax liability to less than 10 per cent using only Gift Aid, a donor earning £150,000 would have to give away 63 per cent of their income, experts have calculated. A donor earning £1m would have to give away more than 75 per cent of their income.

In total, 255,000 people were paid more than £150,000 in 2010/11, which suggests that about 0.11 per cent of all top-rate taxpayers gave three-quarters of their income to charity under Gift Aid.

But the figures probably do not capture the full scale of extremely large gifts to charity, says Kevin Russell, technical director at the donor support charity Stewardship, because they include only donations under Gift Aid. "A lot of people will give shares or property, or make legacies," he says. In addition, he says, many of the largest gifts will still fall below the HMRC threshold.

The figures also show that the number of people making large gifts has been increasing in previous years. The number of people reducing their tax liabilities to less than 10 per cent through Gift Aid rose from about 160 in 2008/09 to 330 the following year, and 340 in the most recent year.

"I'm not sure what conclusions can be drawn from that," says Russell. "One hypothesis is that it's a change in behaviour connected to the 50 per cent tax rate. But there is another explanation - that the data just isn't very good."

Nick Aldridge, chief executive of MissionFish UK, which runs the charitable arm of the online auction site eBay, says the cap was the latest in a number of measures aimed at reducing fraud among donors to charities.

"There's a general trend to crack down on a minority of fraudsters and tax avoiders by making life more difficult for everyone, and the tax cap is the latest example," he says. "I think it's been shown to be not very effective."

340 - Number of people earning more than £150,000 who used Gift Aid, and no other tax relief, to cut their tax liabilities to less than 10 per cent

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