So Oxfam is a tax avoider then?

While it is commonly assumed that charities are exempt from tax, that is not actually the case. Although they are exempt from tax on certain types of income (from donations, rent or investments), the profits they make on business or “trading” operations are taxable, except in specific circumstances. By setting out the very limited circumstances in which trading profits are exempt (see section 524 of the Income Taxes Act 2007), Parliament made it very clear that it intends charities’ other business income to be taxable.
The reaction of Oxfam, and most of the other charities, has been to run their business operations through a separate company. That company would be taxable on its profits, but it donates all its profits to its parent charity through the “Gift Aid” scheme, which exempts them from tax.
This fits the standard definition of tax avoidance – an artificial structure (separating out some of the charity’s activities into a separate legal entity) that gives it a tax advantage.
Of course I do not think there is anything wrong with Oxfam doing this; like all good tax avoidance it is perfectly legal and it is an ingenious way to escape a tax liability. But should Oxfam really be criticising other businesses for avoiding taxes when it does just that with its own?

And there’s more than just the occasional rumour, entirely unfounded of course, that Oxfam actually does real tax evasion too.

47 thoughts on “So Oxfam is a tax avoider then?”

  1. Amusing link if you like that sort of thing.
    Puzzling is the trading co. If Oxfam Ltd passes 100% of profit to Oxfam org, then it can have no capital or cash reserves. So a bit dodgy as a prospective shop tenant, from the landlord’s POV. Or is there yet another swerve in there somewhere?

  2. I sneeze in threes

    It doesn’t have to gift all it’s profit unless mandated to by deed of covenant. Any profits retained will be taxable at the normal rate.

  3. These trading companies have a fundamental problem, in that to eliminate the tax charge you have to Gift Aid the taxable profits, which are are normally a little higher than your accounting profits. This means that the distributable reserves you need to make the donation (which counts as a dividend for accounting purposes) normally exceed your retained earnings.

    So to create the required reserves, you need the parent charity to effectively gift money to the trading company, so the company can gift it back and create a tax deduction.

    It is all horribly contrived, and in my experience the people running the charity don’t really understand what they’re doing. They work on the basis that charities are tax-free, and everyone else is doing it, so it must be OK.

    It’s really a problem with the legislation,exempting charities from tax, which is all a bit brief and hasn’t been thought through in enough depth. It therefore relies on HMRC guidance: basically, there is enough of a skeleton of legislation there for HMRC to build their own regime, rather than having Parliament do it. Which is exactly how HMRC like it, and exactly how I think it shouldn’t be done 🙂

  4. “This fits the standard definition of tax avoidance – an artificial structure (separating out some of the charity’s activities into a separate legal entity) that gives it a tax advantage.”

    I was under the impression that whether or not something is an entirely artificial structure purely designed to lower a tax bill is actually the test HMRC uses to decide if a scheme is acceptable tax avoidance or forbidden tax evasion. This would be in the latter category, as it’s been described there.

    The interesting thing is that Oxfam shops don’t sell secondhand bric-a-brac anymore, at least round here. It’s all vastly overpriced Oxfam-branded tat like stationery and paper plates, or fair-trade chocolate at a huge markup compared to other retailers of precisely the same thing.

    If the Charities Commission had the balls, it would be going over everything Oxfam does with the closest of scrutiny – at best it’s a deliberate pushing of the boundaries, at worst it’s a fake charity, hijacked by a few for their own interest.

  5. “you need the parent charity to effectively gift money to the trading company”

    Are we sure about which one’s the charity? 🙂

  6. Substitute “Murphy” for “Oxfam” in the last sentence and the epiphany is complete.

  7. I question the assertion that gift aid can’t be claimed on the money made from selling second hand items. My local children’s hospice shop asks for my name and address when I donate items so that they can claim gift aid on the value of those items when they are sold.

  8. I can’t really disagree that some of the big charities have stretched well beyond their remit. It’s the way of big business to structure themselves as ‘sophisticated’ as it is possible.

    And also agree that most of the stuff in their shops, as fair trade as it may be, is a far cry from when my grandmother was managing a shop.

    Of course, there would always be the odd moccasin made in Afghanistan, but there would always be a whole load of interesting ‘thrift-ware’.

    However, since this is an IEA piece, just as you lot do, it’s fucking bollocks from a body full of arseholes who ought to be hanged immediately. Especially that smug bastard Littlewood who should drown in puke and piss. (see your beloved military initiation rituals)

  9. Little wonder that socialism always ends in the 3am knock and the bullet in the back of the neck when you can scratch the surface of the likes of Arnald and find a gulag guard manque………

  10. Jim

    And there I am under your bed.

    So it’s ok for Worstall – and most of you, to state institutions and people should be exterminated and “the enemy within”, but I’m not?

    Obviously you’d be a collaborator.

  11. SE

    I infer that the fact it was done, and may have happened before, that it was probably standard practice, and so part of the military that is somehow revered in this blog.

  12. @ Arnald
    Tim wants to eliminate institutions that engage in mass-murder but I have never seen him advocate the mass-murder of all members of the Communist Partty of the GB (and I should have taken note – two of my friends were Hon Secretary and Hon Treasurer of the Oxford Communist Club).

  13. Ignoring Arnald’s irrelevance there is a serious point about whether Oxfam’s trading profits should be taxed. And the answer is that, as long as they all go to Oxfam’s charitable purposes (and do not contribute to the CEO’s pay packet) they should not.

  14. @ bif
    You are overlooking the New Labour legislation on empty shops. If the landlord lets it to a charity he/she/it does not haver to pay business rates.

  15. John>

    “And the answer is that, as long as they all go to Oxfam’s charitable purposes (and do not contribute to the CEO’s pay packet) they should not.”

    So you’re saying it’s taxable, then? Less than 50% of Oxfam’s revenue even nominally leaves the country. >90% of the remainder goes to paying salaries of rich western ‘aid workers’. <5% goes to actually helping poor Africans in Africa.

  16. The definition of charities is completely arbitrary to begin with so of course they are avoiding taxes

  17. @ Dave
    I was merely pointing what the tax situation should be.
    I support some charities that do some good work.

  18. Arnald,

    Frankly, I can’t give a rancid shit what you claim to “infer”.

    Have you got any evidence that any commentator on here, even vile wretches such as yourself, support abusive hazing or any other sort of ritualised (or ad-hoc) workplace bullying?

    If not, just fuck off and leave the adults to disagree with each other.

  19. @john77

    So empty shops still pay business rates. And charity shops don’t pay business rates.

    If I was a landlord I’d set up a pet charity, rent the shop to it while empty / under refurbishment and give it some small amount to channel to somewhere I’d like the money to go.

    I’d save, some good would be done, and the only loser is govt (so double plus good).

    But does this actually work? HMRC would surely see me coming a mile off.

  20. @ bif
    One of the companies that I followed until it was taken over did operate a (just legal) scheme for landlords to let shops to charities; in a few cases the shops did not actually sell anything

  21. John 77

    The huge salary paid to the VEO would be charged to tax. In fact much more tax than if they had just kept it in the company.

  22. If you donate your furniture to a large charity these days you are as likely as not to be asked if you wish to gift aid it. In fact you can only gift aid cash donations; not furniture. So they get yoy to sign something saying they are selling the fur it ure on tour behalf. Then you get a statement telling gyoy that unless you say yy want the money back they will assume the amount for which they have sold your furniture has now been gift aided to yoy.

    I o ce tested Murphy on this; he was fine with it. I guess tax avoidance (though it seems more like tax fraud to me) is Fi e if the right people do it.

    This comment was written by Stemcor Comments Ltd, a trading subsidiary of Ironman Aid.

  23. I sneeze in threes

    Any company can gift some or all of its taxable profit to any charity it likes not just subsidiary companies of charities. The gift will simply reduce / eliminate the tax liability.

    Operating costs of charities or their subsideries (including CEO pay) are tax deductible. Charities can claim 80% statutory relief on business rates for all premises, not just empty shops in depressing northern high streets, but also for plush offices in prime central London. Maybe the landlords increase the rent a bit knowing this?

  24. I think it was the lot I worked for at the time (KPMG) who came up with the wheeze of ‘gift-aiding’ your entrance fee to the local zoo.

  25. :BiF and John… It’s already being done.

    An acquaintance of mine had some, quite large, empty business premises that were attracting substantial UBR costs. He was approached by a “religious charity” who offered to set up in said premises – for a fee. The fee was considerably less than the rates, so a deal was done. The charity got some extra dosh at the expense of the treasury. Result.

  26. I don’t see how the gift aid declaration can be valid. At the time the gift is made nobody knows how much the article will be sold for and hence how much tax is being reclaimed(I.e. whether the donor has paid enough tax to make the claim).

  27. So am I right in thinking that Oxfam is effectively offering to sell items in its shops for just 3% commission? And you don’t have to give them the proceeds if you don’t want to? And as ownership never passes to Oxfam you can ask for the items back if they aren’t sold?

    Sounds like a pretty good deal to me, far better than Ebay.

  28. Jim

    Yes, thay is the official legal position. So you can just imagine the fun, the really great fun I had a year ago with the British Heart Foundation when I informed them I wanted my 97% back please and I might need to charge interest if they didn’t hurry up about it. The phone calls were brilliant:
    “Doin’t you realise the good work we do as a charity?”
    “Well right now the only work I see you doing is trying to keep money that doesn’t belong to you. Besides I need it; I want to give it to a good cause”.

  29. Richard Murphy seems to think Parliament explicitly wants the charity to get gift aid on this income. I rather think if Parliament had explicitly wanted that it would have been, well, explicit about it.

  30. I sneeze in threes

    AlexM, the gift aid will only be claimed when the “donation” actual cash occurs.

    http://www.charitysorp.org/media/619101/frs102_complete.pdf

    “Charities accepting goods for resale under the UK retail gift aid scheme are acting as agent in selling the goods on behalf of the donor and are in law entitled only to an
    administration fee until such time as the donor waives their entitlement to the sale proceeds. Charities which have historical data may use an estimation technique to recognise income from such arrangements from the point of sale, for example by applying a formula or mathematical model to estimate the likely amount of the donations that will result from their subsequent sale. Income may be recognised from
    the point of sale where this reflects the substance of the transaction provided the income recognised is adjusted to reflect the risk that some sales will not result in a donation. Where a donor does not waive their entitlement to the sale proceeds, the administration fee is analysed as ‘Income from other trading activities’ in the SoFA”

  31. @sneezein3’s

    It appears that the standard wording on Gift Aid forms changed last year. It used to be the case that the tax payer made a declaration that they had or would be paying enough tax to cover the Gift Aid, so that in theory if that wasn’t the case, the Revenue could say that this was an invalid representation and refuse the charity’s Gift Aid claim. Now it seems that the standard wording simply warns the donor tax payer that if they don’t pay enough tax “they will be liable for the difference”, which to my mind seems pretty unenforceable (what is the relevant taxing provision).

    Suppose that the ancient American guitar that you inherited from your aunt turned out to be owned by Robert Johnson or the hardly used pair of Dunlop Green Flashes turned out to the ones worn by the girl in the Athena bum-scratching tennis poster, then instead of Oxfam selling the donated goods for less than a fiver, they sell it to founder of Microsoft or as the case may be tennis clothing fetishist for a 6 figure sum, and claim the Gift Aid. Does the Revenue have the right to come after you for all that tax?

  32. “Suppose that the ancient American guitar that you inherited from your aunt turned out to be owned by Robert Johnson or the hardly used pair of Dunlop Green Flashes turned out to the ones worn by the girl in the Athena bum-scratching tennis poster, then instead of Oxfam selling the donated goods for less than a fiver, they sell it to founder of Microsoft or as the case may be tennis clothing fetishist for a 6 figure sum, and claim the Gift Aid. Does the Revenue have the right to come after you for all that tax?”

    Well presumably they’d have to ask you first if you are prepared to give them the 6 figure sum, so they can claim the Gift Aid. And you could then say ‘Actually as I didn’t mean to give £100k to Oxfam, just an old guitar I thought was worth £20, I want most of the money back, and Oxfam can have £100’

    If Oxfam just took the money without consent and claimed the Gift Aid and HMRC came knocking for the tax you could just say you never consented to such a large donation, and ask them to prove you did.

  33. John 77

    And the answer is that, as long as they [Oxfam trading profits] all go to Oxfam’s charitable purposes (and do not contribute to the CEO’s pay packet) they should not [attract tax].

    But the money is fungible – how can you ever hope to segregate the two purposes?

  34. And the answer is that, as long as they [Oxfam trading profits] all go to Oxfam’s charitable purposes (and do not contribute to the CEO’s pay packet) they should not [attract tax].

    The CEO’s pay packet (if he is employed by the trading arm) is allowable in computing the trading profits.

  35. @Jim

    “If Oxfam just took the money without consent and claimed the Gift Aid and HMRC came knocking for the tax you could just say you never consented to such a large donation, and ask them to prove you did.”

    But that isn’t what it says in the Gift Aid declaration which you sign when you hand over the goods, although as you imply it may just be a meaningless threat.

  36. “But that isn’t what it says in the Gift Aid declaration which you sign when you hand over the goods, although as you imply it may just be a meaningless threat.”

    But you can’t Gift Aid an object, or a theoretical sum, given what the item will sell for is unknown at the point of donation. So at some point they must have to ask you if you wish to gift them the proceeds. If they don’t they are a) not getting a legal Gift Aid form, and making a fraudulent Gift Aid claim to HMRC as the amount was not specified when the document was signed and/or b) stealing the money the sale of the item made from its rightful owner, as in order for the scam, sorry scheme, to work legal ownership of the item mustn’t pass until it has been sold and the sale proceeds received.

    They can’t have it both ways – either item is the still the property of the donor until sold, and the proceeds also the donor’s until they agree to give it away, or if ownership passes at the point of donation then Gift Aid cannot occur. They are accepting the former by charging ‘commission’ – they are legally stating that they are selling the item for you.

  37. ususe I have significants doubn

    @ dcardno
    I don’t hope to do so but their tax accountants claim to do so.
    *Please* do not ask me to justify lefty behaviour – I was merely noting the law on tax. When my wife sends me with a bag to the nearest charity shop they just say “thank-you”; occasionally she sends me to the next-but-one which asks me to do a “Gift-Aid” form which I refuse because I have significant doubts about my ability to Gift-Aid my wife’s possessions.

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