People who use charities as a front to avoid tax are the real target of a government clampdown on charitable giving, Prime Minister David Cameron tells Channel 4 News, as the charity tax row grows.
The £50,000 cap on tax relief for charitable giving will cut out abuse, said Mr Cameron as the government aims to tackle tax evasion.
On Tuesday Dame Stephanie Shirley, who runs a group called Ambassadors for Philanthropy and has herself given away £60m, wrote to the government, accusing it of “a cack-handed assault on philanthropic giving”.
In last month’s Budget, Chancellor George Osborne unveiled plans for a cap on tax relief of £50,000 on charitable giving or income from interest on loans.
Dame Shirley said the charity sector stood to lose “hundreds of millions of pounds a year”.
Even charities with a large number of regular donations from people on more modest incomes said they would be hit by the clampdown.
In an interview with Channel 4 News political editor Gary Gibbon during his trade trip to Indonesia, the prime minister said: “There is no doubt in my mind that some people are using charities that have been set up – sometimes specifically for the purpose – to reduce their tax rates so they are not paying enough tax.
“That is an abuse.”
However speaking on Channel 4 News multimillionaire philanthropist Stelios Stefanou said “no tax dodger in their right mind would give £100 or £100,000 in order to receive a small percentage of it back in tax relief, so it can’t be a real tax dodge.”
Mr Stefanou also commented that: “any philanthropist or any donor gives money with an open heart hopefully, but at the same time looks for recognition in the tax system so that they don’t feel as though they are doing this alone.”
So far 1,800 charities and benefactors have signed up to a campaign opposing the changes organised by the Charities Aid Foundation, a body which handles over £1bn a year in donations.
In a video posted on the campaign website, Sir Stuart Etherington, the CEO of the National Council for Voluntary Organisations (NCVO), demanded more evidence of No 10’s assertion that people have been avoiding tax by giving to charities that are not really doing charitable work.
Describing the claim as “pretty disgraceful”, Sir Stuart said: “they have to be able to show that these charities they are donating to are not doing charitable work and then it’s a matter for the regulator to investigate – not for the prime minister to pontificate about … without that level of evidence these are just ridiculous statements that muddy the water.”
Sir Stuart went on to warn that the proposed cap on tax relief would not only damage the charity sector as a whole but might also influence donations to charitable foundations: “philanthropists give to foundations and those foundations make grants – we’ve got to remember that today’s gifts are tomorrow’s grants.”
Budget pursues PM all the way to Jakarta reports Political Editor Gary Gibbon
On normal work days I share a postcode with the Prime Minister, but he's decided to do his first UK TV interviews since the Budget in Jakarta. You can see mine on Channel 4 News tonight at 7.
The issue of the day that is dogging him is the Budget fall-out on capping tax relief for charitable donations. The PM sounded in his joint press conference with the Indonesian President like a man who was ready to look again at all this.
Read more on Gary Gibbon's blog
But Mr Cameron rejected calls for a review, or any intervention by the Charities Commission into any wrongdoing.
He said: “It is important to deal with abuse, and I think this is the right way to deal with abuse.
“People watching this programme will want to know that rich people will pay their income tax and under our plans, rich people will pay their income tax”.
According to recent estimates, gifts from philanthropists accounted for more than 15 per cent of the £10.6bn donated to charity in Britain in 2010.
Last week the chairman of the newly created Big Society Capital (BSC) – a fund intended to encourage ‘social finance’ – warned of the danger that the government’s new tax policy could undermine other efforts to encourage philanthropy.
Speaking on Channel 4 News, Sir Ronald Cohen said that the proposed withdrawal of the tax relief on charitable donations above £50,000 could “have a bigger negative impact than the amount of money flowing in to us.”