Think tank blog compares Gift Aid to tax-avoidance schemes in general

A post by the academic Richard Teather on the Institute of Economic Affairs' website has been called 'nonsense' and 'smoke and mirrors' by sector representatives

The blog
The blog

Charity sector representatives have criticised an article posted on the Institute of Economic Affairs’ website as "nonsense" after the article likened Gift Aid schemes to tax avoidance.

In a blog post published last week by Richard Teather, senior lecturer in taxation at Bournemouth University, two Oxfam schemes were singled out as looking "remarkably like tax avoidance".

The article came after a letter organised by Oxfam earlier this month and signed by 355 economists said there was no economic justification for tax havens.

The IEA has previously criticised the charity sector, producing a report in 2012 that said state funding for voluntary organisations created a "sock-puppet version of civil society".

Teather’s article compares the donation of profits from subsidiaries to the parent charity through the Gift Aid scheme to tax avoidance.

"This fits the standard definition of tax avoidance – an artificial structure (separating out some of the charity’s activities into a separate legal entity) that gives it a tax advantage," the article says.

"Of course I do not think there is anything wrong with Oxfam doing this; like all good tax avoidance it is perfectly legal and it is an ingenious way to escape a tax liability."

The article also cites Oxfam’s Tag Your Bag scheme as another example of tax avoidance, saying that the scheme allows Oxfam to claim Gift Aid on the sale of donated goods, which are sold by the charity on the donor’s behalf with the proceeds donated to the charity.

"All of this is perfectly legal and there is absolutely nothing wrong with legal tax avoidance – or at least so I believe," the article says. "Just as business done through tax havens is perfectly legal (except perhaps for occasional errors, which those involved carefully seek to eliminate) and there is nothing wrong with it.

"But that is not Oxfam’s view; it is a strange philosophy that condemns actions in others while busily engaging in them oneself."

Alison Hopkinson, finance director at Oxfam, said both the schemes highlighted were specifically approved by HM Revenue & Customs.

"The IEA blog is a classic case of smoke and mirrors, using partial information to make a case against Oxfam where none exists. The fact is that we are very careful to comply not just with the letter of the law on tax but also the intention behind it," she said.

"It’s also worth noting that the information in the blog is published in our annual accounts – tax-dodgers tend to be rather more secretive."

Andrew O’Brien, head of policy and engagement at the Charity Finance Group, said: "This latest IEA hit-piece is complete nonsense. You’d struggle to find anyone that believed maximising the money raised for good causes from donated goods or trading was on the same planet as tax avoidance found in the Panama papers.

"The tax system is designed to minimise the amount of tax paid on money given for good causes. Charities such as Oxfam have a duty to ensure that they are not incurring unnecessary tax. What this story does remind us about is the need to educate the public about how tax reliefs such as Gift Aid work and why they are important."

John Hemming, chairman of the Charity Tax Group, said the IEA’s comparison was entirely unfair.

"The point with both of these arrangements is that they are agreed, sanctioned and promoted by HMRC," he said. "The tax guidance for charities contains sections explaining how to do it. The accused charities are using the rules exactly as intended. The same can’t be said of people who use tax havens."

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