Tony Blair benefits from donations to charity?

Thes idea is being pushed by you know who:

Blair confirms that he gives “substantial amounts” to charities, of which he has set up three since being forced out of Downing Street. Each time that he makes a donation to one of his own charities, they are legally entitled to claim back gift aid and he can also claim tax relief.

The effect is to allow him to escape paying income tax on what he gives, while receiving further relief on top. According to experts, a donation of £500,000 by Blair to one of his organisations would amount to a donation of £625,000, including gift aid, with £125,000 subsidised by the British taxpayer.

Tony Blair would also be entitled to claim further tax relief at 30 per cent of the £625,000, equivalent to £187,500, which would be handed back to him. “These charities do good, but there is a lot in this for the benefit of Tony Blair,” claims Richard Murphy, an accountant, who is critical of the former Labour prime minister’s business dealings.

Look, this is nonsense.

Forget the flow of money for a moment and look at the stock before donation and after donation.

Assume Tone\’s on 50% (he is).

He earns £1 million. Pays 50% on it (there\’s no NI at this stage of the income game, or at least not enough that we\’ll worry about).

£500 k to the taxman, £500k to Tone.

OK, so instead of spending that dosh on himself, he donates it to a charity. The charity gets basic rate tax given back to it, the tax already paid, of £200,000 (the Telegraph\’s numbers above are wrong). Tone then gets tax relief on his own tax return of £300,000: the difference between the 20% basic rate and the 50% top rate.

So, at the end of all of this Tone has, out of that £1 million in earnings, £300,000 in his bank account. This is less than the £500k he would have had if he had paid the tax and not donated.

So how has he benefitted from making a donation?

If I\’ve got the numbers wrong and the Telegraph is correct then in fact Tone has £187,500 and not £500k. He\’s still, not in any manner that I can see, benefitted from making a donation to charity.

So what in buggery is Murphy playing at?

As to this:

A source at HM Revenue & Customs says: “It is perfectly legal [but] people are, effectively, using the mechanism of the tax system to make a contribution to a charity of their choice, while ignoring their responsibility to the state.

“People claim they want to do things out of the goodness of their own heart, but you cannot expect UK Plc to subsidise them. The claim that charities spend the money better than the state is absurd. The reason we have a welfare state is because charities cannot cope.”

That source at HMRC needs to be fired. Now.

That\’s a political argument you\’re making and you\’re not in politics, you\’re in the civil service. Shut it.

41 comments on “Tony Blair benefits from donations to charity?

  1. “The reason we have a welfare state is because charities cannot cope.”

    That source at HMRC needs to be fired. Now.

    That’s a political argument you’re making and you’re not in politics, you’re in the civil service. Shut it.

    It’s also utter bollocks. Either that, or someone can explain to me why we have a St John’s Ambulance, a British Red Cross and a network of air ambulances – all of them charities. And they’ll also be able to point out the sterling work of the state lifeboat service too.

  2. You are absolutely right on all the above. The only way Blair could benefit is if Blair, as a trustee of these charities, is using some of the charity funds for his own benefit. For example letting the charity fund a trip somewhere to speak on their behalf, and/or his own.

    He could further benefit privately from this by being paid outside the UK, for say a speaking engagement, into an undeclared bank account abroad. But he would never do that because he completely trustworthy and an upstanding citizen.

  3. I doubt I will ever agree with Murphy but a point is almost being made and struggling to get out.

    That is that Blair’s charities can use the enhanced amount of money due to the tax relief to employ people of use to Blair. If all work done was strictly charitable this might be considered OK but the set-up he and others employ is opaque. Who is to guarantee that he is not in effect a beneficiary of his own donated money?
    Perhaps he (all donors) should only be able to receive the relief on donations to charities over which they have no control or influence.
    As for the civil servant – totally out of order he can speak politically after resigning his position.

  4. So much does Blair earn as salary from working for these charities – possibly for work carried out abroad while he is no longer UK resident?

  5. In fairness to the Telegraph, I think you’re confusing two sets of figures. Gift Aid presumes that the gift has already had basic rate tax deducted. So a gift of £500,000 represents 80% of the amount earned. The Gift Aid is therefore 20/80 of the gift, or 25%.

    As you’ve calculated, if you earn £1 million and donate the lot, then the basic rate tax on that £1 million is 20% of it.

  6. “So, at the end of all of this Tone has, out of that £1 million in earnings, £300,000 in his bank account. This is less than the £500k he would have had if he had paid the tax and not donated.”

    Wouldn’t the tax relief mean he effectively pays tax on £700k rather than £1million?

    £1m in income less the £500k donation leaves Tony with £500k. Taxable income would be only £700k due to £300k of tax relief. Tony pays £350k tax leaving him with £150k in bank. Charity receives Tony’s £500k and another £200k on top that comes from Tony’s £350k tax paid. The Government would then only be getting a net £150k from Tony’s £1m income.

    I’ve got to such a low figure for both Government and Tony I think I’ve gone wrong.(Charity gets £700k, Tony left with £150k and Government gets £150k.)

    “So how has he benefitted from making a donation?”

    The issues raised by Westerlyman and BarryS are important. The Government didn’t need to tackle that with changes in the tax system though. They already regulate charitable activity so could instead keep a closer watch on the charities receiving large donations.

    Leaving aside any issues of who is running the charities Tony is donating to he can choose to redirect £200k of his taxes into a charity of his choosing. I think that is great. Our taxes getting spent on things *we* want them spending on.

  7. Toni is bent as a nine bob note, so it’s not very likely that his charities are pure as the driven.

  8. “I’ve got to such a low figure for both Government and Tony I think I’ve gone wrong.(Charity gets £700k, Tony left with £150k and Government gets £150k.)”

    That can be right. Tony would have 500k if he donated nothing. Now he has 150k. So he has actually donated 350k.

    However, the charity claims that he donated 700k. That’s fine. The problem is the government claims that he donated 560k!

    What happens is that after basic rate tax, Tony still owes HMRC 300k, but because of his “560k donation”, he receives a “tax relief” of 210k. Therefore, “only” 90k is taken under the higher rate tax, which is an abomination.

    Out of the 290k, HMRC gives the charity 140k, leaving it with 150k.

  9. I think the basic point here is that Tony Blair is as bent as a nine bob note, so it’s not very likely that his charities are pure as the driven.

  10. Strikes me that if the brains trust on here can’t figure out the calculations then:

    1. Murphy has no chance
    2. The rules need clarifying by the courts and not HMRC

    Furthermore, if Blair or any other person is gaming the system by using dodgy charities then the fault lies with the Charity Commission not the person gaming the system.

  11. I think the confusion arises because for most people the money they have in their pocket has already had tax paid on it (PAYE), and therefore a donation of £100 to charity was actually £125 of gross income (if a basic rate payer). So for most people the tax has already gone, and the charity is getting some of that back, and the tax payer (if a higher rate payer) gets the difference between the basic and the higher rates. So tax is already paid and then comes back. Which sounds ‘fair’.

    (This is all set out quite well here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/GivingMoneyToCharity/DG_078490)

    However if you are a self-assessment tax payer, you have gross income in your hand, particularly if you are in business. So a donation of £100 will still have an income tax liability at some point in the future, unless you claim relief on your self assessment return. So a wealthy person can ‘avoid paying tax’ by making a donation to charity, as their donation pre dates their tax payments. They make a donation, and pay less tax afterwards. This apparently seems ‘unfair’.

    The end result is exactly the same obviously, but I’m guessing that the concept of parting with money and then getting it back vs never having to pay HMRC in the first place is somehow different in many peoples minds.

  12. And on the issue of dodgy charities and donors getting benefits somehow via the back door, surely its not beyond the wit of man to change the law such that any donor over £x amount cannot in any way get any money back from the charity, even for goods supplied, expenses, consultancy fees etc etc. A rule that would have zero effect on any legitimate charity.

  13. Westerlyman (#3) has it.

    The problem here isn’t the tax relief for charity donations, it’s Blair getting his money back through back-hander benefits.

  14. “The claim that charities spend the money better than the state is absurd. The reason we have a welfare state is because charities cannot cope.”

    So why does the government give money to charities then? (60% + of their total income in some cases.)

    The notion that government can spend my money more wisely than me is absurd. (er, I think.)

  15. It doesn’t matter if the government can s[end my money more wisely than I can. It doesn’t matter whether I spend it on Rumanian orphanages, cat rescue homes, Cartagena hookers, single malt, Star Wars figurines or a 1000′ high effigy of Arsenald giving Richard Murphy a blowjob. IT’S MY FUCKING MONEY.

  16. I’ve not visited this site for a long time but your understanding of taxation has not improved one iota Worstofall.

    The Telegraph’s figures are correct: see here for an explanation http://www.hmrc.gov.uk/individuals/giving/gift-aid.htm#4 (You don’t seem to be able to do even the basics of fact checking).

    You will see that after the donation Tony Blair and the charity will have between them £812,500 (£625,000 for the charity and £187,000 for TB) compared with £500,000 (£500,000 for TB and nothing for the charity) had the donation not been made.

    You may say this is all well and good, especially if the charities in receipt of these donations were such as the St John’s Ambulance, the British Red Cross or the RNLI. Unfortunately these rather wealthier donors prefer in many instances not to do this but give to charities which reflect things closer to their own heart (and I suspect there is nothing closer to TB’s heart than TB himself). In many instances they will set up their own charities to benefit from their largesse. Sometimes these charities will never make any contributions to good causes (“we have to build up a capital fund don’t you know”). Sometimes they will be set up outside the UK which may lead to further avoidance and evasion. And so on and so on…… but you will, of course, not be interested in this will you Worstofall?

    Please keep away from tax because your comments on it only serve to diminish what little credibility you have.

  17. Sorry, that was a little bit brief.

    “me” is an ignorant git of the first water.

    A hypothetical TB has a million quid to pay himself with. We’ll assume it’s his only income? Just because we can’t calculate it at all unless we make some assumptions.

    He pays it all to himself, to cover his horrendous wife’s tooth whitening bills. He gets about £444,766. HMG gets the rest.

    He pays £500k to charity. The charity, believe it or not, gets £500k. Honestly. People like that don’t give to charity from PAYEd income. Hell, I don’t. He gets £206,450, HMG gets £293,550.

    Anything else is just the government arranging the tax rules because most people give out of PAYE income. Which is sensible. But allows idiots to get upset about stuff they are wholly ignorant of. Which qualifies them to be an MP, I suppose.

  18. @ Ben
    Why should Tone pay VAT?
    VAT is chargeable on the supply of goods and services and Tone supplies neither (unless you consider listening to waffle is receiving a service)

  19. TB will pay VAT on some of his expenditure. But the actual %age is horrendous to estimate. Housing, for example, is VAT free. He will also be able to reclaim input VAT, as a small business, on some things normal people can’t (not being VAT registered.)

  20. The Treasury’s case, stripped down, is that there are a lot of wealthy people paying into charities and then taking their money back by circuitous routes.

    Given that such takings are criminal and there are plenty of other quite legal ways the wealthy can avoid tax, this isn’t remotely credible for the broad mass. And the IR can use the criminal law to whack the idiots that are doing it. Job done.

    So why is the Treasury hoeing this row?

    I suggest they’re using it as cover to bring in a version of the US AMT, which is proving to be such a nice little earner.

    It won’t work though.

  21. I think people are arguing about different things. It comes down to whether Tony’s charidees are, like Tony himself, merely aspects of Tony Blair PLC.

    Take myself. I draw rude comics for a living. Suppose I now set up a charity to “promote the acceptance and understanding of rude comics”, through which I happen to significantly boost the profile of my own rude comics. The effect is I can now punt money off to a tax-free marketing department without spending it “myself” after paying tax “myself”.

    I had a look at Tone’s “charity” and it seems to be a gigantic marketing department for Tony Blair’s ego. So effectively, it’s spending money on his behalf, while evading tax. I think that’s the gist of the complaint.

  22. 1) The Telegraph’s gift aid calculation is correct. (Talk of money “handed back to him” isn’t likely to be how it works, but the numbers are right.)

    2) For Blair or anyone else to claim tax relief on donations to charity, the charity has to be recognized by HMRC. If HRMC isn’t happy with what some particular charity is doing, it has the power to do something about that.

  23. Honestly, you lot are making a fairly simple matter horrendously complicated. I recommend this excellent explanation from Andrew Brooks of how tax relief works: http://www.sbconsulting.co.uk/blog/2012/4/12/income-tax-relief-on-charitable-giving.html?utm_source=twitterfeed&utm_medium=twitter

    The principle of charitable giving, as established by Parliament a long time ago, is that it is TAX FREE. It used to be that individuals donated the gross amount directly to charidee, declared the donation on their tax returns and received tax relief either as a reduction in the tax due to be paid or as a refund of tax already paid. Then along came the Gift Aid scheme, which as with all things created by the civil service was a perfectly sensible idea turned into an abomination. Under Gift Aid, all donations to charity are made NET of basic rate tax, irrespective of the tax status of the donor. The charity claims back from HMRC the amount of basic rate tax deemed to have been paid. But higher-rate taxpayers aren’t supposed to pay ANY tax on their donations, because giving is still officially tax free. So higher-rate taxpayers declare their Gift Aid donations on their tax returns and are “relieved” of their higher-rate liability on that donation.

    In Tone’s case, that means that on a Gift Aid donation of £500k from his mega-income, the charity will claim an additional £125k from HMRC, giving them a total of £625k (25% not 20% because as Christie points out we are grossing up). Tone will declare his Gift Aid donation on his tax return, HMRC will intelligently realise that this is net of basic rate tax and relieve him of all tax on £625k. Assuming that Tone would have paid 50% tax if he had kept the money, that means that tax relief on the total donation of £625k is £312.50k, of which the charity receives £125k and Tone gets £187.50k. So the Telegraph’s figures are correct.

    This is the Gift Aid anomaly about which people lose so much sleep. Murphy was claiming recently that this is a tax REFUND to the rich. No it isn’t, unless Tone has already paid his tax – which is unlikely. It’s a reduction in his tax charge. He doesn’t get any cash benefit.

    What Murphy doesn’t seem to understand is that Tone has STILL PAID THE MONEY. Tone is no better off because he didn’t pay any tax on the donation. The charity has benefited, but both Tone and HMRC are out of pocket – which was the point, surely?

    What Murph wants is for Tone to pay 50% tax on his £625k donation and then top up the donation to the amount that it would have been if he hadn’t paid the tax. The equivalent donation if Tone didn’t get any tax relief at all would be, er, £1250k – i.e. twice as much as the original gross amount – because obviously he would also pay 50% tax on the additional amount to top up the donation to its original level. I should point out that Murph is not the only dreamer. This is also what the Government was hoping the likes of Tone would do in response to their idiotic tax relief cap.

    The charity sector has formally disputed HMRC’s claim that many charities are spurious. Sir Stephen Bubb, chairman of the NCVO, has asked HMRC to provide evidence of spurious charities so that they can be closed down:
    http://bloggerbubb.blogspot.co.uk/2012/04/attacking-charity.html

    If Tone’s charity exists only to market Tone, as IanB suggests, this is a matter for legal action, as it is difficult to see how marketing Tone can be regarded as “public benefit”. If HMRC is correct in their claim regarding spurious charities, then the Charities Commission should be called to account – and perhaps there should also be a pushback to the European Commission regarding standards for charities based in the EU. None of this constitutes reason for eliminating the principle of tax-free charitable donation.

  24. Honestly, you lot are making a fairly simple matter horrendously complicated.

    Only if Tony gives from PAYEd income. There doesn’t appear to be any reason why this would be the case. Except (relatively small – in this context) donations from his PM / MP pension, of course.

  25. SE

    Non-PAYE taxpayers still give donations through Gift Aid net of basic rate tax. They then declare their Gift Aid donations on their tax return and receive tax relief as a reduction in their tax charge. As I described. Simples.

    It would be more complicated if the donation was made through a company. But that isn’t what we were discussing.

  26. It would be more complicated if the donation was made through a company. But that isn’t what we were discussing.

    But my point is that I bet that’s how he does it.

    Interestingly, there doesn’t appear to be any facility on the current (okay, last year’s) Self Assessment form to enter charitable donations that weren’t subject to Gift Aid.

  27. So Ian B and Dearieme are the same person? Why do they comment under different names on the same comment thread?
    ——-

    Frances’ figures are correct. The debate I was having on here the other day is what happens if Tone only earns £250,000 and pays £125,000 tax.

    Then he pays enough tax to cover the £125,000 the charity upscales his £500k donation by. Can hen then claim further tax back himself?

    If he can, then in this case he’s (as before) made a £625,000 donation, which has cost him only £375,000 (as he could only claim back £125,000 tax), which means the Treasury has subsidised it by £125,000.

  28. “Honestly, you lot are making a fairly simple matter horrendously complicated”, writes Francis, and then follows up with 644 words explaining how simple it is.

  29. Argh!

    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.
    I must not misspell Frances.

  30. Matthew,

    The answer depends on how Tone came by the additional £250k over and above his earned income. Clearly he didn’t earn enough in the given tax year to make such a large donation, so he has either saved the money, been given it (gift or inheritance), sold some valuable assets, won the lottery or made a killing on the National (sorry, that was tasteless!). The tax arrangements vary on these and we would need input from a real tax expert to explain it all. Suffice it to say that if any of these are taxed as income then he has “earned” considerably more than £250k and so would be able to claim higher-rate relief.

  31. Frances, I think you’ve made a mistake in your working, by effectively counting the 20% basic rate tax twice (i.e. by Tone declaring a donation of £625K rather than £500K; he didn’t give £625K, he gave £500K, and the charity got £125K back from HMRC).

    My take is this:

    Gross income: £1M
    Tax due: £478K (http://listentotaxman.com)
    NI due: £23381.04
    Net income: £498.618.96 (after NI)

    Gives all £498618.96 to charity
    Charity gets (£498618.96/80)*100=£623273.70
    Tony declares donation of £498618.96
    HMRC reduces Tony’s tax liability by (£623273.70/100)*(50-20)=£186982.11
    Tony’s £625K donation actually cost him £498618.96-£186982.11=£311636.85 of net income.

    What the likes of Murphy don’t seem to realise is that if the higher rate tax relief is removed, then one would reasonably still only expect Tony to give that £311636.85, leaving him with the same £186982.11. Consequently, the charity will only end up with £389546.06 instead of £623273.70.

  32. Alex – aren’t those the same figures as Frances’s, just slightly more precise?

    Frances – Well let’s say he won it. In that example the Treasury ‘subsidies’ the donation, no?

  33. Matthew – nngh. I swore it said something different earlier, but I must have been more asleep than I thought I was. Mea culpa.

    Murphy et al’s unstated point of view, though, is that all income accrues first to the state, and by its munificence, it allows its subjects to keep some. Couple that with the view that the state *always* spends money in the wisest and most effective way (or, at least, keeps his supporters in beer and sandwiches), and you can see how he arrives at his conclusion.

    Personally, I believe that sometimes the state gets best value for money, and sometimes charities and private businesses do. Ideally, the state should provide the things that the vast majority of its citizens agree upon (and tax accordingly), whilst other things should be addressed by charities or by people making responsible and appropriate arrangements for themselves and their families.

  34. Alex B – I like my numbers rounded!

    Matthew – yes, of course it can be regarded as a subsidy. But then all tax relief on charitable giving can be regarded as a subsidy if your view is that charitable giving should be additional to the civic duty of paying tax, not instead of it.

    All tax relief on charitable giving goes to the charity, not the donor:

    Basic rate (Gift Aid) – donor makes donation net of tax, charity claims tax from HMRC

    Higher rate – donor makes Gift Aid donation net of basic rate tax but inclusive of higher rate tax. Charity claims basic rate tax paid from HMRC, donor claims relief on higher-rate tax due on the gross portion of the donation. Effectively HMRC has paid tax relief both directly and indirectly to the charity, directly through the Gift Aid claim and indirectly due to higher-rate tax forgone.

    The hysterical lefties who claim that higher-rate relief is a benefit to the DONOR completely miss the point.

    In the example I gave, Tone would have to double his donation for the charity to receive the same amount of money if there were no tax relief. As it seems pretty unlikely that he woudl do this, removing tax relief, or restricting it to basic rate, or imposing a relief cap, would all reduce the income to charities. In effect charities would be taxed.

    And as we all understand tax incidence, don’t we, we know that indirectly taxing charities by removing or restricting tax relief on donations would mean that the people who would REALLY pay that tax would be the beneficiaries of those charities. I wonder how lefties calling for restriction of tax relief to basic rate (or even its complete removal) would feel if they discovered just how much of the money raised in memory of Claire Squires would go to the Government if tax relief were restricted?

  35. I’m not saying any of that. I’m saying in the example, it seems to me that the Treasury gifts the charity more than Tony paid in tax, ie there is a direct subsidy.

  36. I’m saying in the example, it seems to me that the Treasury gifts the charity more than Tony paid in tax, ie there is a direct subsidy.

    Nope. If your charities get more in Gift Aid than you pay in tax, you get a tax bill.

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