Aid workers hit by expat tax changes

AID organisations are having to find extra cash to compensate field workers whose salaries are no longer tax-free.

The Government's decision to abolish the foreign-earnings deduction affects hundreds of people working for charities abroad. Their salaries are already much lower than those in the commercial sector. Now, charities say, they will have to pick up the tax bill too.

Oxfam says the new rules affect only five of its employees at present, but that number could increase at any time. So far it is costing the charity pounds 20,000 that could be used for other projects. For instance, it is running a pounds 20,000 programme in western Sudan helping 10,000 farming families by teaching them more effective techniques for collecting rain and harvesting.

Olive Gearing, a spokeswoman for Oxfam, said: "Before the rules changed we would pay people's salaries, less the value of the tax they would have paid. This meant that they ended up with the same salary as if they had paid tax. We did not have to spend so much on salaries and could devote more money to our work.

"Now we have to increase the salaries to allow for the tax they must pay, and that money has to come out of the budget that is set aside for our relief programmes."

When Denis Healey, the then chancellor, introduced the deduction measure in 1977, he hoped to encourage talented Britons to take up opportunities abroad without becoming tax exiles. They would remain domiciled here, spend money here and remain British. There was a logic, too, in not charging people tax for services they were not using.

Under those rules, if a person went abroad for 365 days or more, and provided they did not return to the UK too often during that time, they were not taxed. Now the rules revolve around the tax year which started on 6 April.

This means that Samantha Wakefield, who left to work for Oxfam in Khartoum in February and will return next February, will not have been abroad for a full tax year and must therefore pay tax.

Ms Wakefield, 31, who is working as regional human resources manager, said she was angry about the new policy. "I do think it is unfair that organisations like us are affected and have to pay out so much money to cover the tax. It does not make any difference to my final salary, but the regional budget has been cut to take into account the fact that I must now pay tax.

"I feel quite angry with the Government for doing this. We do not have that much money and it is already hard to get funding. We do so much with so little money and pounds 20,000 is a lot of money for Oxfam.

"People will still have to be sent out to situations and Oxfam will just have to pick up the bill. We can't wait until the start of the tax year."

Nick Kavanagh, vice-chairman of the Charities Tax Reform Group and finance co-ordinator of Save the Children, said the new rules were very worrying. "As long as you have been away for a full tax year then you can still be paid gross, but you can have the ludicrous position of someone who leaves on 1 May 1998 and returns on 31 March 2000: they have been away for nearly two years but they will still have to pay tax because they have only been away for 11 months of each tax year."

Save the Children could have between 30 and 60 people on short-term contracts at any one time who would be affected by the new rules, he said.

"The cost of dealing with this will fall back on the charity, but we cannot say how much that will be at this stage because it depends on how we can work around the new rules. If we refuse to do anything about what we pay people that would put them off wanting to do the work, so we will have to do something.

"It is an extra cost to us - both in making up the salaries to allow for the tax they will have to pay, and in administration."