13 Apr 2012

The aftershocks of the tax relief cap

After a turbulent week for the 'charity tax', Daniela Barone Soares of the Impetus Trust considers the aftershocks of the chancellor’s cap on tax reliefs

There are nearly a million voluntary organisations in the UK that benefit disproportionately from the contributions of rich donors. When the chancellor announced that there would be a cap on the tax reliefs available on large donations in his 2012 budget, the earth shook throughout the voluntary sector.

From next year, anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25% of their income.

Tax reliefs on charitable donations exist for many reasons. They are in part a recognition that personal wealth can be used to make a contribution to enrich others in society through giving to charity rather than the contribution made to the state. Furthermore, they encourage the richest to engage in good works, with organisations that are often more effective than state vehicles.

It’s clear that this policy is wrongheaded, and especially damaging to charities that are already pressed to do more with less in the name of the Big Society.

The prime minister felt the tremors on the other side of the world. Travelling in Indonesia this week, David Cameron said he would “listen sympathetically” to the views of the sector.

This followed comments from another government spokesperson who seemed to imply that philanthropy in the UK was tainted with fraud and fraught with tax evaders. Philanthropists filled the headlines and regarded the comment as a “slur”. Now a Treasury spokesperson has been quoted as saying the change would be introduced “without having a significant impact on those charities that depend on those donations”.

How this could be true is hard to imagine.

A cap on tax relief is disastrous. It would certainly reduce my own giving substantially

Stephen Dawson

My organisation, Impetus Trust, makes use of both the time and money of professionals in order to help charities and social enterprises grow. Many of the charities in the Impetus portfolio, and indeed Impetus itself, rely on substantial private donations to fund their core work so they can continue to offer important social services to people in need.

The harsh reality now confronting charities is how to keep supporting those who most need help when their private donations are falling.

At Impetus, private giving accounts for a third of our income. Of our donors, one in five would be hit by the new rules, but these donors give half of the total. It is easy to imagine that this is the case for other organisations.

According to Charities Aid Foundation, of the £11bn given to charity by individuals in the UK last year, 10% of the total was provided by just 200 people, each of whom gave more than a million pounds.

Our work at Impetus will be more difficult to achieve if our big-ticket donors are discouraged from giving.

 Stephen Dawson, co-founder of Impetus and one of our biggest donors, has devoted the past decade of his life to charity. In 2010 he was awarded an OBE for his service to charity. "People like me who give a lot relative to their income are going to be railroaded by this latest measure," he said.

 "A cap on tax relief is disastrous. I am afraid to say that it would certainly reduce my own giving substantially. It may course through the social sector like a tidal wave, destroying much in its path."

Of course it’s not all about money. Our corporate partnerships with companies like KPMG and PwC, provide the expert advice that can build the infrastructure to implement a growth strategy or stand on firm ground through political or economic oscillations.

A team of pro bono experts from KPMG, for instance, has helped Blue Sky Development & Regeneration, a charity Impetus supports that aims to break the cycle of reoffending by giving paid employment to people recently released from prison.

Blue Sky’s goal is to get ex-offenders into permanent jobs and KPMG experts helped to integrate the financial management and accounting systems to allow for more effective contract management, thus maximising Blue Sky’s impact. And last year Resurgo Trust, another organisation in our portfolio that provides one-to-one coaching to young people not in employment, education or training for the job market, had PwC experts review and develop financial systems and processes so it could track increases in income and people helped.

This sort of support, when combined with financial backing, has the potential to transform the social sector.

The jolt from the Treasury will have charities of every size thinking about their future. Philanthropists will likely face tough choices, too. It seems the upheaval caused by the chancellor’s cap on tax relief will continue, and the challenge faced by the charitable sector of helping get people back into jobs and of helping alleviate poverty will only increase.

The movement against the absurd measure shows no sign of dissipating until there is a shift in thinking from the government.


Daniela Barone Soares is chief executive of the Impetus Trust