Er hello? Does anyone actually understand how the tax relief cap works?

Last week, I got in touch with HM Revenue & Customs and asked them how their new tax relief cap would work.

This new idea – George Osborne’s only mention of charity in the Budget – means that you can’t claim tax relief on more than a quarter of your income, or £50,000, whichever is higher, and will obviously make it much more expensive to give very large amounts to charity.HMRC has been spectacularly short on detail, so I decided to check how it would work. If someone earned £200,000 and gave £100,000 to charity, would he be capped? How much would he lose? Would it make a difference if the charity claimed Gift Aid?

Some people think the cap kicks in at a donation of just under £100,000 plus Gift Aid. Some seem to think it kicks in around £40,000 plus Gift Aid. Which is right? Is either?

The answer seems to be that they don’t know. Haven’t the faintest idea. Or at least, if anyone inside HMRC does know, their press office can’t find that person.

The Charity Tax Group now tell me they have the word from HMRC: the relief cap first kicks in when you give £40,000 under Gift Aid, and earn less than £200,000. I still wouldn’t put too much money on that being the right answer.

It may seem extraordinary that the government could announce a limit on charitable giving without knowing how it might work. Especially when it has the potential to do enormous damage to some of the country’s largest charities.

But in truth, it’s par for the course. Almost every year, the government announces a new bit of vexatious legislation designed at stopping tax avoidance which makes life more difficult for charities. Substantial donor legislation. The fit and proper persons test. Now this tax relief cap.

It’s always announced in a hurry, rarely thought through, and usually child’s play to avoid if you’re dodgy, but really hard to cope with if you’re honest.

Rarely is it easy to work out exactly why government has introduced a new anti-avoidance measure, because they cook them up at the last minute and never tell anyone about them, but the best guess, in this case, is it’s not really targeted at charities at all. It’s aimed at two other reliefs – loss relief and qualifying loan interest relief – which were also included in the Budget, and Gift Aid has been caught in the crossfire.

One clue that this is the case is that HMRC does have good worked examples of how the legislation will affect these reliefs, and it seems to be coming as a bit of a shock that donations work differently.

George Osborne did say he’d work with philanthropists to ensure genuine giving wasn’t affected, and it seems hopeful that in the long run, the government will thrash out a compromise so that charities won’t be hurt too much by this.

But undoubtedly it will take a huge amount of work, waste a lot of time, and potentially damage philanthropy in the UK.