A gift horse in training?
Gift Aid has come a long way in 20 years. Clarissa Dann provides a practical guide to how to operate it and reviews progress on reform
KEY POINTS
- Gift Aid use has levelled off
- Smaller donations don’t use it
- The government has committed to some reform
- HMRC is simplifying the reclaim process
Back in September 2010, CAF’s chief executive John Low launched ResPublica’s research report, Digital Giving – Modernising Gift Aid; Taking Civil Society into the Digital Age, and called on everyone to “rise to the challenge laid down by the research”. He also made a specific plea to the government not “just to leave it as a really good report” on the shelf.
The 92-page report claims that the charity sector was missing out on as much as £750m in unclaimed Gift Aid from an antiquated system.1 It is important to remember that Gift Aid is not the only means of tax-efficient giving. The Institute of Fundraising’s helpful microsite lists all its manifestations with some practical tips on what each one involves (see Figure 1). The rest of this article looks at Gift Aid in further detail, provides a practical guide for charities, and summarises progress on reform.
Gift Aid
Origins
First established by the Finance Act 1990 for introduction from 1 October that year, it was limited to cash donations of £600 or more. It was only when Gordon Brown simplified the whole scheme ten years later, and removed the cumbersome deed of covenant mechanism, along with any Gift Aid thresholds, that Gift Aid donations grew rapidly, increasing from £43m in 1999/00 to £4.5bn – with £1.1bn being reclaimed by charities in 2009/10.2
It has recently become popular for charities to reclaim the tax on the income earned by charity shops acting as an agent for the donor. That is provided the charity has installed HMRC-approved systems to record and track the progress of each item from receipt to sale, and confirmed with the donor that the donation should still go ahead. This is known as ‘retail Gift Aid’.3
How it is used
One of the key findings in the NCVO/CAF report, UK Giving 2010,4 was that not only had the use of Gift Aid by donors levelled off at 40 per cent but people who donated larger amounts are more likely to use Gift Aid. In 2009/10 it was used by 73 per cent of those giving higher-level donations (£100 or more) compared to 20 per cent of those giving small donations (£10).
It is its inaccessibility to the masses that is highlighted by the ResPublica report. While the larger charities have built Gift Aid into their fundraising procedures, it is often the smaller ones that find the bureaucracy ‘just not worth it’ (in the words of one amateur music society).
The Gift Aid message
HMRC has done much to improve the practical support tools for charities so that clear online guidance (which has superseded the CDs) is available for the whole process of registering for Gift Aid and ensuring donors complete the appropriate paperwork (Gift Aid declarations – see next page/below). A summary of the procedure, together with a link, is set out in Figure 2. There are separate forms for Community and Amateur Sports Clubs (CASCs) which are outside the scope of this article.
However, claiming Gift Aid is only possible when the charity has actually received the Gift Aid declarations in the first place, and it is this message that the sector needs to do more to promote – especially to those making intermittent, small donations (although those under £10 will automatically trigger Gift Aid repayments to HMRC up to a limit of £5000 a year per charity from April 2013 following the 2011 Budget).
The point to get across on all fundraising points of contact is that money donated to charity is money the donor has already paid tax on, so by Gift Aiding it, this tax can go straight to the charity. Online donation services communicate this very effectively when the donor sees the value of their original gift go up once the relevant boxes are ticked by the donor. Larger charities have this message, with an easy-to-understand calculation up on their websites, on direct mail pieces and briefed into telephone fundraisers.
For example, Great Ormond Street Hospital (www.gosh.org) explains its benefits and how it works up front and very clearly, with a drop-down tab entitled ‘Gift Aid’ within the ‘Donate’ part of its website. Few charities draw much attention to the fact that higher rate tax payers receive a rebate from HMRC on their self-assessment (SA) forms, provided all the donations can be verified. The rebate is the difference between the higher rate they pay and the basic rate of tax – around £300m was reclaimed by them in 2009/10 according to HMRC.
Although in recent years there has been a mechanism via the SA system to re-gift this amount back to a charity (SA Donate) this facility was withdrawn in the recent Budget. Renewing it was raised as an option to the government but would have involved further investment in HMRC technology, which was not considered worthwhile for the amounts involved.
Some charities do ‘remind’ their regular donors that this money could be set aside as an additional gift.
Gift Aid reform
Charity tax forums
Aside from all the innovative suggestions outlined in the ResPublica report, the sector has been lobbying the government for years with its wish-list for Gift Aid reform. It was the Gift Aid Forum, set up by HM Treasury over a year ago, that was tasked with looking at how Gift Aid could be simplified.
Peter Fanning, chief executive of the Institute of Taxation (CIOT), wrote a report setting out a number of recommendations arising from the forum’s discussions. At its final meeting on 30 November 2010 (its work is being continued by the Charity Tax Forum), Justine Greening, Economic Secretary to the Treasury, confirmed that there was much in the report that could be taken forward. The key points of her response were:
- HMRC will explore the viability of online filing of Gift Aid claims but cannot fund the creation of a Gift Aid database. However it will work with the sector “to ensure any database created meets the legislative and audit requirements” and is developing some “intelligent forms” for charities in 2011. Charity Tax Group has since been talking to commercial suppliers about the development of a free Gift Aid database. This would be a piece of software that charities can use to manage their Gift Aid records.
- She wanted to examine Payroll Giving to see what could be done to improve take-up and its operation, but does not intend to bring it within Gift Aid as it gives all tax relief to the donor.
- Enabling higher rate taxpayers to redirect all the tax relief on their donations to charities was something she has asked HMRC to take forward as part of its work with the HMRC Charity Tax Forum.
- There is interest in the potential of harnessing internet and mobile phone technology to deliver new ways of giving to a new generation of donors and the charity representatives are encouraged to keep HMRC updated on these. The recent announcement from Vodafone of a free text giving service is an example of this.5
The documentation of these exchanges can be found at: www.hm-treasury.gov.uk/ 8519.htm
Summary of latest Gift Aid status post Budget 2011
The government’s Giving White Paper6 reconfirms its commitment to making it easier for people to give and restated the reforms announced in the 2011 Budget on page 43 of the document. It recognises: “the administrative burden that paper filing of Gift Aid declaration forms added.” The current status of Gift Aid reform can therefore be summarised as follows:
- Transitional relief will only apply to donations up to 5 April 2011 and will not be extended. This is the relief to restore charities to the position that they would have been in had the basic rate of income tax remained at 22 per cent. It was reduced to 20 per cent on 6 April 2008, reducing the amount reclaimable by charities on Gift Aid.
- Gift Aid on small donations. From April 2013 charities will be able to claim Gift Aid on up to £5000 a year on small donations of no more than £10 without the need for Gift Aid declarations. To qualify, charities need to have been recognised by HMRC for Gift Aid purposes for at least three years and have a good compliance record (see Figure 2 above). Around 80 per cent of charities do not collect Gift Aid on gifts of £5 or less.
- The maximum Gift Aid benefit threshold was increased from £500 to £2,500 from April 2011 ‘to enable charities to give ‘thank you’ gifts to recognise the generosity of significant donors’. There was some scepticism about whether a monetary limit was needed at all, given the five per cent limit for large donations.7
- Online Gift Aid claims. Following Justine Greening’s earlier indications, HMRC will move towards a new system for online Gift Aid claims, expected in 2012/13. As a first step, ‘intelligent’ R68 reclaim forms were introduced in April 2011 for verification purposes although these still need to be printed out and submitted manually.
- Gift Aid tax repayments from HMRC. All payments will be made by bank transfer from April 2013 and cheques will be discontinued. HMRC is alerting all charities currently receiving payment by cheque.
Outlook for Gift Aid
There is no question that Gift Aid has come a long way since its original introduction over 20 years ago. However, it is only recently that reform momentum has accelerated as the government is looking at ways to increase UK giving.
The investment in appropriate HMRC technology and its continued vigilance for abuses of the Gift Aid system8 is a huge step forward.
Note: I am grateful to Crowe Clark Whitehill for their technical assistance and to the Institute of Fundraising for their summaries of other forms of tax-effective giving.
1. www.respublica.org.uk/sites/default/files/ Digital%20Giving.pdf
2. www.hmrc.gov.uk/stats/charities/table10-3.pdf
3. www.hmrc.gov.uk/charities/gift_aid/ rules/ retail.htm
4. www.ncvo-vol.org.uk/sites/default/files/ 101216_UKGivingReport_FINAL_with_hyperlinks.pdf
5. www.charitiesdirect.com/caritas-magazine/ free-text-donation-service-here-at-last-996.html
6. www.cabinetoffice.gov.uk/resource-library/ giving-white-paper
7. www.charitiesdirect.com/caritas-magazine/ budget-boost-for-charity-giving-reform-948.html
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from
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