The giving tax: what do we actually know?

In the current row about charities and tax, it’s worth being clear about what is known and what isn’t. Here’s the relevant evidence we’ve encountered.

Income

Total income of UK charities £37bn Source:NCVO Almanac
Income of UK charities from individuals (i.e., excluding gov’t contracts, earned income etc.) £11bn NCVO Almanac
Income from higher-rate tax-payers ~£1.4 bn NCVO briefing about the tax cap’s impact

Tax relief (or ‘tax subsidy to charities arising from donations’ or whatever your preferred language is)

Total UK tax relief on donations1 £910m HMRC: http://www.hmrc.gov.uk/stats/charities/table10-2.pdf
Total UK tax relief on donations excl. inheritance tax £450m HMRC: http://www.hmrc.gov.uk/stats/charities/table10-2.pdf
Amount of that given to non-UK charities2 Unknown, but probably very small. HMRC may know but isn’t saying.
Tax relief on gifts from higher-rate tax-payers £360m (of the £450m) HMRC: http://www.hmrc.gov.uk/stats/charities/table10-2.pdf
VAT paid by charities >£1bn Charity Tax Group

Impact of the proposal

Income which stands to be affected Unknown. HMRC will know but isn’t saying. It’s not knowable by outsiders because charities only know about what is given to them: they may well not know about a donor’s donations to other charities, i.e., whether the donor is giving enough elsewhere to get above the cap, or what ‘other’ tax avoidance measures they’re using, e.g., business losses.
Estimated charity sector income which stands to be lost Unknown
Estimated gain to Exchequer of the cap on all tax avoidance mechanisms £300m BBC: http://www.bbc.co.uk/news/uk-politics-17726548
Estimated gain to Exchequer of including charities in the cap ~£60m£50-100m Sunday TimesBBC: http://www.bbc.co.uk/news/uk-politics-17726548
Estimated gain to Exchequer of cutting the 50% tax rate ~£100m

Would the proposed tax changes change donor behaviour?

We don’t know. Evidence is mixed:

  • No, implies a randomised control trial of 50,000 donors in the US3.by development economists at Yale and Chicago. Donors who were told that their donations would be ‘matched’ were more likely to give than those who weren’t, but the level of matching (some were offered a $1 match for each $1 they gave; some a $2 match; some a $3 match) made no difference.
  • Yes, implies a study by Sarah Smith of the University of Bristol’s Centre for Market and Public Organisation. By looking at how giving changes when GiftAid rates changed, they concluded that ‘the loss in donations following a cut in the rebate would be greater than any increase in tax revenue’.

1 Includes tax relief on: payroll giving, GiftAid, shares. Excludes relief on inheritance tax (=£460m) and tax reliefs given to charities (e.g., stamp duty), which collectively = £2.73bn.

 2 Under a 2009 EU ruling, UK taxpayers can reclaim UK tax on donations to charities anywhere in the EU.

3 “Does Price Matter in Charitable Giving? Evidence From a Large-Scale Natural Field Experiment,” by Dean Karlan at Yale and another development economist at Chicago. http://www.econ.yale.edu/ddp/2006/ddp00013.pdf.

Among donors who received a matching-gift appeal, contributions were 19 percent higher than among those who were simply asked to make a gift. And 22 percent more of the donors who got a match offer made a contribution.

But the more generous match offers of $2 or $3 for every dollar donated did not significantly lift contributions. Donors who received the one-to-one matching offer gave a total of $10,431. Those who were told that each dollar given would be matched with $2 contributed $11,423, and those who were offered $3 for every dollar contributed donated $10,439.

So the gov’t’s proposal makes no sense, but neither does the campaign against it. Here’s what the government should do—>


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One Response to The giving tax: what do we actually know?

  1. Kimberley Scharf says:

    Hi-the research on Gift Aid is actually co-authored equally by myself, Kimberley Scharf (Professor at Warwick University) and Sarah Smith (Bristol), would be great if you could fix that in your blog. Thanks, Kimberley Scharf

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