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.
|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.