CTC, WTC and charitable donations

robindunne1

liney wrote: »

Seriously, though give your money to charity and then claim it back in Tax Credits? You are kidding me right?

The withdrawal percentage rate for tax credits is 37%. Therefore for every £100 you can deduct from your income you will receive £37 more tax credits.

In the case of Gift Aid. If some gives £100 to charity, the charity will receive that money and an additional £28 from HMRC as a tax credit from the income tax already paid on that amount. The total Gift of £128 is the allowable deduction against income which will give the giver and additional £47.36 (£128 x 37%) in tax credits.

Therefore the charity receives £128 and the net cost to the giver is only £52.64! (£100-£47.36)

This not only applies to charitable donations, but also to pension contributions.

robindunne1

growingafamily wrote: »

thanks gaz
calling is prob best

I wouldn't ever advise people to call the tax credit helpline for technical help. I know it sounds strange but I have had plenty of arguments with them about the finer point of TC legislation. These are simply call centre staff getting paid very lowly wages and won't have a clue when it comes to Gift Aid and pension contributions.

Looking on the HMRC website has always been the best way for me to find out what I need to know.

http://www.hmrc.gov.uk/manuals/tctmanual/index.htm

liney

So effectively, the goverment (and we) are paying £37.00 of the charitable donation for each £100 pledged.

Please be clear, i am not against donations, but i do think it wrong to pledge £37.00 of someone elses money.

I am truely shocked that this is allowed. At least with pensions you are saving for the future and are less likely to be claiming pension credits when the time comes, so i can see the logic there.

Elaine_Wilson

Those who seem surprised at this should consider that this situation has been around for far longer than the tax credit system.

Why is it shocking that a low paid person should receive tax relief at their marginal rate? Higher paid earners (including really rich ones) have always received relief at their highest rate - currently 40%.

Of course the tax credit system produces some anomalies. All aspects of the tax system do. I think the real moral question is should you claim a benefit or relief where you fulfil all the requirements, even if you are not one of the intended recipients?

For example, my level of earnings mean I am entitled to Working Tax Credit. Last year my actual income was just above the cut off point but the difference was the increase in the value of shares I own. Should I refuse to claim?

bestpud

liney wrote: »

So effectively, the goverment (and we) are paying £37.00 of the charitable donation for each £100 pledged.

Please be clear, i am not against donations, but i do think it wrong to pledge £37.00 of someone elses money.

I am truely shocked that this is allowed. At least with pensions you are saving for the future and are less likely to be claiming pension credits when the time comes, so i can see the logic there.

I guess you could argue (depending on the charity) that they are providing a service which would otherwise have to funded by taxpayers? At the very least, many charities decrease the chance of people becoming dependent on the state.

Also, please remember (not you personally but it is a common sight on these forums) that recipients of working tax credits pay taxes too! I'm not sure of the exact percentages now, but the tax burden in this country is not evenly distributed and is heavily in favour of those in higher income brackets. There is far bigger a proportion of potential revenue lost to coorporations and high rate tax payers every year than the amount charities receive!

Mostly though, my point is that we are relying more and more on voluntary organisations and charities to provide valuable (and necessary) services the government doesn't want to know about!

MarkyMarkD

It seems pretty obvious to me from this Inland Revenue form: http://www.hmrc.gov.uk/forms/tc825.pdf that Gift Aid payments DO qualify as a reduction in income for tax credit purposes.

As Elaine_Wilson says, why shouldn't they? It is standard UK tax law that charitable payments can be made out of your gross income, before any taxes are deducted. So, by inference, they should be deducted from your gross income, before any tax credits are calculated.

It is just accepted that charities should get this benefit.

liney

Tax you pay is tax you pay - it not a savings fund; you are not 'entitled' to benefits because you worked and paid tax.

In my opinion it is immoral to lower your income deliberatley in order to recieve benefits. If you want to give money to charity, go ahead, but give YOUR money to charity and don't expect it to be replaced by the benefits. if you are claiming money to replace your donation then you couldn't afford to pledge in the first place.

My mind will not be changed. I am sorry if people are offended.

bestpud

I don't think it's a deliberate ploy to get more money is it? Would be a bit daft, I'd have thought, as the donator doesn't actually benefit from it.

They get so much in the pound back via tax credits but not the whole amount. I can see your point but I think it's a bit OTT to suggest it is a way of making money out of the tax payer, as they clearly are not making money - they are just getting a portion back iyswim.

Tax credits are not a right, no, but the fact the people who claim tax credits also pay income tax is a relevent point to make when it is being suggested people are donating other people's money. They are donating their own money too, through the public purse, as they also pay tax!

MarkyMarkD

Liney - the money given to charity isn't replaced by benefits. That would imply that tax credits were given on a £1 for £1 basis as your income reduces (or conversely, lost on a £1 for £1 basis as your income increases), which is not the case.

Whilst I understand your point, the same applies to pension contributions which are a valid deduction from taxable income for both tax and tax credit purposes. Most people would view them as something people could choose to opt out of, if they are short of money, but they are still allowed as deductions.

liney

At least with pensions you are saving for the future and are less likely to be claiming pension credits when the time comes, so i can see the logic there.

Allow me to quote myself. )

I never said it was a way of making money. Clearly you do not recieve the full amount back, and i see that this is within the rules, but it doesn't stop me believing it is morally wrong.

Edited to say i think some are missing the point here. The pledger does benefit because for each £100 he donated he recieves £37 back. If he pledges £100 it should cost him £100, not him £63 and the goverment £37 which they now have to pay him in tax credits.