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.