After Eight

Following the recent Live 8 events, MARIA KITT wonders if tax practitioners can play a more active role in fighting world poverty.

IN THE WORDS of the song, 'Money, can't get enough ...', and vast sums have been channelled into African countries over the last twenty years since Sir Bob Geldof first stood up to make his stand at Live Aid. So why is he exasperated at the G8 leaders meeting this week and what role does a tax system have in supporting and focusing aid initiatives? Has the UK tax régime been successful or are these simply crumbs from the rich man's plate assuaging a conscience?

Come senators, congressmen ...

As the G8 leaders meet, there are some members with an obvious embarrassment. The United States has lagged behind the 0.7% gross domestic product (GDP) target set by the 1992 'Earth' summit in Rio de Janeiro. Contributing just 0.1%, it sits at 22nd out of 22 in the league table of Organisation for Economic Development (OECD) developed donor countries; and although this exceeds $15 billion in real terms, Japan matches this dollar for dollar. Interestingly, the UK is on target to achieve 0.47% by 2008 and 0.7% by 2013.
'Campaign Review', a coalition of leading third-world charities, highlights four cornerstones of an effective aid generating system, of which a tax system has been a vital component: the UK has been overwhelmingly successful and a top performer in this regard. These cornerstones are:

• the targeting of wealthy people and successful companies;
• encouraging participation by employers and employees;
• the motivation of young people; and
• the promotion of tax-effective giving.

In my opinion, the UK tax system has been unbelievably successful in promoting charitable giving and some of the statistics speak for themselves. Table 1 below shows the increasing level of Gift Aid contributions over the past five years.

   Table 1. Gift Aid contributions

Year	£ millions
2001	410
2002	440
2003	501
2004	556
2005	591

There has been a concerted policy to encourage charitable donations and I am personally amazed by the enthusiasm of HM Revenue and Customs and their effectiveness. The work and ideas of IR Charities have produced various useful tax measures.

• Very generous and prompt repayments to charity under the Gift Aid scheme facilitating £28 of extra income for every £100 given by a taxpayer.
• Immediate tax relief in the tax code for higher rate donors.
• The ability to give tax refunds away to charity or even one nominated by Gordon Brown!
• The donation of shares and land to charitable causes.
• Gifts of trading stock and equipment.
• Payroll giving grants from 26 January 2005 providing employers with up to £500 for setting up a payroll-giving scheme and matching the first £10 donation by each employee for up to six months; an even bigger encouragement than is given to online filing!
• Dedicated HMRC cause teams such as the Tsunami relief appeal team.

In his Budget report in 2004, the Chancellor, Gordon Brown set out his stall for these efforts to continue and facilitated full consultation with charitable concerns as to what they actually need and what focussed measures were helpful to them. Yet there has been some spectacular nonsense, such as the abolition of the gift aid tax relief on entrance fees and the rather loud mistakes made and acknowledged by Gordon Brown with VAT regulations regarding the Tsunami appeal and the current 'Live 8' promotion.
I really cannot see how these rather public debacles are helpful to what has been a very successful aid program. Yet these are persistent and the pursuit by HMRC of anomalies by charitable concerns making minor breaches of VAT regulations is quite merciless. Perhaps we should ask Sir Bob Geldof to intervene in our VAT disputes for charity clients!
Please heed the call...
The tax system is symptomatic of a deeper popular culture of which Africa has become the conscience and this is not limited to the UK. By comparison, one might expect the US to have an abysmal record for payroll giving, yet the IRS have introduced schemes which have matched the success of the UK. It seems that gift aid and a supportive tax administration are vital parts of the Western economy. Symptomatic of this is the inclusion of charitable donations in The Sunday Times 'Rich List'; as people become successful the donation of part of that wealth is both desirable and a worldwide phenomenon. This culture of philanthropy now manifests itself just as much with taxes as the wearing of wrist bands.
Table 2 below indicates the numbers of donors giving through payroll giving schemes and the amounts contributed by them.

Table 2. Payroll giving: Donors and contributions

 

 

Year	Contributions £m	No of donors
2000	38	751,000
2001	52	510,000
2002	72	498,000
2003	86	521,000

 

 

Thinking about the Government ...

Yet why is Sir Bob still haranguing the Government? Why is Africa not in a better position and why is there a chronic and worsening need for aid, despite the fact there has been such success in giving? Sadly, it seems that money has not been a panacea: in fact it has not been a solution at all, but may sow the seeds of disaster. It is estimated that for every £1 given in aid, its recipient is actually £14 worse off in the long run. In absolute terms, Oxfam reported that Africa has lost £1,440 billion to rich countries in the last thirty years for various reasons such as bad investments, losses on currency, export of skilled labour and unfair prices for its commodities; perhaps this was caused by the provision of unsupervised money and absence of aid 'audits'. Besides the permanent secondment of accountants, what can be done to attain effective aid and what lessons could the UK tax system learn?
Could tax policy give aid more focus and could key markets be opened by the introduction of super tax reliefs for companies facilitating beneficial trade with the Third World, perhaps akin to the research and development 150% tax credit? The last tax breaks specific to Africa were the vaccine research reliefs, but these were some time ago and surely we are in need of an army of other initiatives along the same lines. This could move brittle economies away from the sycophantic tourism and financial 'services' industries that have boomed in the shadow of Africa's plight. Could the Government extend the reliefs currently given to the secondment of skilled employees into the Third World and what could this do to reverse the simultaneous march of skilled doctors, trained accountants and nurses out of the same door? Can the interpretation of VAT regulations be tempered with sympathy and common sense?

The times they are a'changing...

How can we as tax advisers and accountants help on a day-to-day basis? Can we be more vigilant against the third world money launderer; can we improve our advisory skills? We each probably have a fair proportion of personal and corporate clients currently 'gift-aiding', but how many of these are aware of, and updated about, new tax reliefs and some of the initiatives such as those above? Do we include charitable legacies and gifts as part of our inheritance tax briefings? It is estimated that 18% of independent financial advisers now provide advice on charitable giving as a core part of their advice to new clients, and perhaps we too can join that. In my own firm, I am lucky to have a healthy number of charity clients whom I think we serve well and which trade profitably and meet their objectives successfully. Whilst on the one hand I hope that this continues, in the long run I know ... 'Something's gotta change'!                                                                                                 
Maria Kitt is Tax Manager at Hazlem Fenton and can be contacted on 020 7440 3995.