Analysis: Will Scottish powers have implications for Gift Aid?

The prospect of the SNP government setting its own income tax rates raises the question of whether the relief itself should be devolved, writes Sam Burne James

  • This story has been corrected. See final paragraph

Addressing the Charity Tax Group annual conference in June, the new minister with responsibility for charity tax issues set out his immediate priorities - predictable ongoing issues including donor benefit and Gift Aid intermediaries.

Damian Hinds, Exchequer Secretary to the Treasury since the general election in May, said: "As well as these areas, on the horizon there are two developments which, in the longer term, could be quite significant." The second of these was the implications for Gift Aid of the Scottish government receiving the power to set income tax rates.

"Even though our thinking on this is at a very early stage, it is clear that this will raise some fairly fundamental questions!" read the official text of Hinds' speech - exclamation mark and all. Nevertheless, Ruchir Shah, head of policy at the Scottish Council for Voluntary Organisations, feels the government is not taking this issue seriously enough. "It's not 'on the horizon'; it's now," he says, referring to the fact that income tax devolution is among the items in the Scotland Bill, already well on its way through parliament.

The problem is this: Gift Aid is 20 per cent, to mirror the basic rate of income tax. The Scottish National Party might raise the basic rate. If Scottish people start paying more income tax but Gift Aid remains the same, then Scottish taxpayers would not be able to gift the full value of tax paid on their donations. This would create what Shah calls "a tax on charitable giving". If income tax were lower than Gift Aid - the less likely option - then the UK's public purse would be topping up Scots' donations, and Shah fears a subsequent cut to its block grant.

The SCVO has previously called for Gift Aid - as well as social investment tax relief, inheritance tax and more - to be devolved. Shah is hoping for a new clause in the legislation to deal with Gift Aid. He is not particularly concerned about what it should be, other than to say that reviewing and giving consideration to the implications would be better than the government "burying its head in the sand" by neglecting to address it. Gift Aid is currently not mentioned in the bill at all.

A spokesman for the Scotland Office says the sector has been consulted and that the government plans to "continue to operate Gift Aid at a UK level even if rates of income tax in Scotland diverged from the rest of the UK".

Andrew O'Brien, head of policy at the Charity Finance Group, says it is best for the sector as a whole to retain the simplicity of the Gift Aid system, and therefore agrees that despite the potential discrepancy the best option is no change. "If there is only a small change in income tax, I think that the costs of reforming Gift Aid could actually offset the benefit," he says. "It might actually end up costing charities a lot of money." He points out that a more complex system would require more complicated Gift Aid declarations, potentially deterring eligible donors.

O'Brien and Shah agree that this is unlikely to be the last piece of devolution, which means that further implications for charities could be just beyond the horizon.

  • The story orginally said the SCVO campaigned for independence in the Scottish referendum. It says it "did not take a stance on yes or no but  stipulated that everyone’s voice must be heard. We pushed hard for higher voter registration and participation rates."


Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus