§ Mr. BurnettI beg to move amendment No. 101, in page 25, line 39, leave out—
'donor shall be assessable and'and insert—'charity receiving the gift shall be'.
§ Mr. Deputy Speaker (Mr. Michael Lord)With this it will be convenient to discuss amendment No. 102, in page 25, line 41, at end insert—
'as if it were being assessed as the donor.'.
§ Mr. BurnettWe have also discussed these amendments at length with the Chartered Institute of Taxation's low incomes tax reform group.
We warmly welcome the new rules for relief for charitable giving, but in one major respect they do not go far enough. The only people whose gifts will not qualify for relief will be those who do not pay tax—if they do not pay tax, they should not give a gift aid declaration. However, that presupposes that during the tax year everyone will know whether, at the end of it, it will turn out that they are liable to pay tax. All sorts of thing can happen. Individuals may fall ill, lose a job—part-time or otherwise—or start a baby and go on maternity leave. They will not know how their income relates to the personal allowances appropriate to their status.
Everyone in the House knows how complex the tax rules are, but they are even more complex in this area than we had thought. It transpires that, even though an individual is no longer able to claim payment of the tax credit attached to a dividend that he or she receives, a charity is not able to do so either. Nevertheless, a charity will be able to receive payment of the tax credit attached to a dividend received by an individual who gives it as a donation.
The purpose of the amendment is to provide that if an individual who turns out to be a non-taxpayer makes a gift that is subject to gift aid declaration to a charity and the charity claims the tax, the liability to repay that tax will fall on the charity and not on the donor.
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We do not believe that that is as burdensome as it may sound. The Inland Revenue has made it clear that it would look first to the charity to repay the tax and that it would look to the donor only in the unlikely event that the charity refused. The amendment would give effect in law to what the Revenue has said would happen in practice. It is surely better that practice should be the servant of the law and the law should put matters right.
§ Mr. FlightI agree with the amendment, which is designed to address important matters that we raised in Committee. Individuals giving to charity but not paying tax could find themselves being pursued for tax that a charity had reclaimed accidentally. That would clearly be undesirable and unjust. The remedies that we suggested were, we felt, the best means of dealing with the problem, but this remedy at least addresses the problem.
§ Mr. GardinerThe relief proposed by the Chancellor could be both extended and maximised. At present, shares 342 that can be given and qualify for relief are limited to those listed or dealt in on a recognised stock exchange. That leaves out a significant category of potential donors—namely, the entrepreneur who has built up a business to the point at which he is about to sell a significant part of it but at which the company is technically still unquoted.
I recognise that the Inland Revenue would not want to become involved in the administrative burden of valuing small parcels of shares—indeed, charities would not want to receive them—but the relief could be improved if it were to include other categories of donor. I would ask my right hon. Friend the Chancellor to extend the kind of shares or securities that would qualify for relief to include those effectively able to be traded or realised. An existing definition is used for the purpose of pay-as-you-earn.
§ Mr. Roger Casale (Wimbledon)I am following my hon. Friend's argument with care and it contains much of merit. I wonder, however, whether it might not be more appropriate to make these points under amendments Nos. 132 and 133, which appear later on the amendment paper.
§ Mr. GardinerMy hon. Friend has made an extremely good point, for which I am very grateful.
§ Miss Melanie JohnsonThe intention of the amendments is to save people on low incomes from having to face a tax bill because they have mistakenly used gift aid when they had paid insufficient tax to allow the charity to reclaim the tax on their donation. In those circumstances, the donor would be liable to be assessed on any shortfall. I agree that that is not a position in which we wish people on low incomes to find themselves, but I do not believe that the amendment is the best way in which to deal with the problem.
The gift aid scheme works by allowing charities to reclaim basic rate income tax paid by donors on payments made to the charity. That means that, under the changes that we have introduced this year, a donor must have paid basic rate tax on income equal to the amount of his gift to the charity under either a deed of covenant or gift aid. We have extended gift aid so that a donor need pay only an amount of income tax or capital gains tax at any rate equal to the amount reclaimed by the charity.
The changes allow more people to use gift aid, but it is still not suitable for non-taxpayers, or, except for modest gifts, for those who pay very little tax. For those people, prevention is better than cure.
We will be publishing information for donors that will make it clear that gift aid is not appropriate for those who pay little or no tax. The declaration must contain a suitable explanation of the requirement to pay sufficient tax, as we discussed in Committee. The charities need to give the same message when recruiting donors. The scheme is not designed to trap the unwary into a tax charge. People for whom the gift aid scheme is not appropriate can still give to charity outside the scheme.
Let me deal with why the amendments are not a suitable way in which to tackle the perceived problem. The gift aid scheme is very straightforward. The donor simply gives a gift aid declaration which must contain the health warning about having paid sufficient tax to cover the tax that the charity will reclaim. The donor needs to disclose nothing further about his or her tax affairs. 343 The charity can then, with certainty, proceed to recover tax on the gift. I hope that, as a matter of practice, charities will remind the donor from time to time of the need to meet the tax to cover the requirement. The onus to comply with that requirement is on the taxpayer.
If the charities were made liable for any shortfall, they would need to know more about the donor's tax position as well as any other gift aid payments to other charities in the year in question so that they could satisfy themselves that everything was correct. That would be a most unwelcome burden for charities and an unacceptable intrusion for donors.
We believe that it is more important for people to be made aware by Inland Revenue leaflets and in the charities' own literature about the requirements of the scheme. The amendments would add complexity to the gift aid scheme, which we have endeavoured to make as simple and straightforward as possible. I believe that they would be most unwelcome to charities and donors alike. For those reasons, I hope that the hon. Member for Torridge and West Devon (Mr. Burnett) will withdraw the amendment.
§ Mr. BurnettThis matter was discussed in Committee, and I think that all right hon. and hon. Members are aware of how gift aid works. We do not claim that the amendment is perfect. However, my point is that the circumstances of individuals can change dramatically during a tax year. I was hoping that there would be rather more sympathy for individuals who had suffered a dramatic change in their circumstances.
The Minister says that the Inland Revenue will be publishing information to donors making the pitfalls clear should they cease to be taxpayers during a year of assessment and if they enter into a gift aid scheme. Given that that information will be available, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave withdrawn.