Monday 14 April 2008

Unintended consequences of the new tax rates?

One of the churches in Bulkington has drawn my attention to a consequence of the changes in personal tax rates that came into effect at the beginning of this month and how it affects the income of a charity under the Gift Aid scheme. Quite simply the reduction in basic rate from 22% to 20% means that if a donor leaves their pre tax amount unchanged, the gift aid income to a charity will fall by 11%.
The sums are as follows:
2007/8 a gross donation of £100 means the taxpayer pays £78 and the taxman adds £22 where the gift aid element is 28.2% of the total.
2008/9 a gross donation of £100 means the taxpayer pays £80 and the taxman adds £20 where the gift aid element falls to 25% of the total.
If the taxpayer leaves their payment at £78, the taxman will only add £19.50 giving the charity an income of £97.50 instead of the £100 they will have budgeted for.
Was this consequence of a change anticipated? Was it thought through?
In addition, the effect of taking away the 10% band means that those on lower incomes who may be supporting a charity will have less income left from which to make the charitable payment. Lots of people will have seen the leaflet the Conservatives have produced showing how a nursery nurse is £154 worse off,; a catering assistant £161; a library clerk £203.
So what Gordon Brown trumpeted as a great benefit has turned out to be nothing of the sort. And those who need support most will end up suffering.