In the recent Budget there was a lot of talk of cracking down on those who seek to avoid paying their fair share of tax. As the race for Downing Street heats up, political parties are clamouring to claim that only their policies will squeeze out unethical tax avoidance, ensuring what is due to the Exchequer is paid up. "Good," I hear you cry. Yet under this tough talk there is a potential dark side – an unintended consequence for charities that gives me cause for concern.
It's long been a principle that tax should not be paid on the money we give away.
Yet cast your mind back a few years to Chancellor George Osborne's fateful 2012 Budget, in which philanthropists were tarred with the same shameful brush as tax avoiders and evaders. The subsequent Give it Back, George campaign resulted in a welcome government U-turn and the removal of the cap on relief.
At the time there were two schools of thought: it had been a cock-up, an unintended consequence of an ill-thought-out, last-minute policy; or it was a conspiracy – a deliberate attempt to undermine the role of charities in society. Whichever was accurate, there is no denying it left problems that needed to be confronted.
Take business rates. Guidance issued by HM Revenue & Customs and the Charity Commission refers to the occupation by charities of otherwise empty properties as tax avoidance, because "the landlord therefore avoids paying business rates". It is clear that sham arrangements involving little or no charitable activity, carried out simply to avoid tax, would be improper. However, I worry when that is extended to charities that genuinely make use of empty properties, prompted by landlords who do not wish to suffer loss of income and who would rather it was put to good use by a charity instead. The first case is clearly a construct to avoid paying; the other is a win-win for landlord and charity.
Now consider Gift Aid. Research shows that the amount lost to error and fraud is dwarfed by the amount of potential Gift Aid that goes unclaimed. Warm words and infographics aside, few significant steps have been taken to help charities, particularly smaller ones, access the relief and claim what they are legally entitled to. Contrast that with the steps taken and complexities built in to reduce error and abuse.
During the introduction of the Gift Aid Small Donations Scheme, there was much talk of the need to avoid fraud and reduce error. Hoops were constructed to ensure that the system was not abused. On one level, I have every sympathy with and support for this; but the measures seemed disproportionate to the actual risks - a classic example of a sledgehammer to crack a nut. The result? A much lower level of take-up than was expected.
We seem to be between a rock and a hard place on this issue. If we stand up against measures to close the tax gap because charities could lose out, we are accused of special pleading; if we don't object, we risk becoming a soft target in the fight against fraud and error.
Improving best practice and piloting ways to close the gap will take time. We should not be afraid to question the government's priorities and press for appropriate time to be devoted to finding solutions. We have a clear incentive to make the system work – failure costs us, too. Given the vital role our sector plays in helping the most vulnerable, surely it's right to stand against the introduction of knee-jerk measures? After all, there are plenty of other areas where error and fraud harm our society, and these should be higher on the government's hit list.
Caron Bradshaw is chief executive of the Charity Finance Group