Changes to retail Gift Aid bring charities a dilemma

Do they really want donors to be liable if it turns out they haven't paid enough tax, asks Rebecca Cooney

Charity shops: Gift Aid dilemma
Charity shops: Gift Aid dilemma

This month, after holding discussions with the sector, HM Revenue & Customs changed a key piece of its guidance on retail Gift Aid.

Previously, if a charity claimed Gift Aid on the proceeds of donations given to a charity shop by someone who, it later turned out, did not pay enough tax to qualify as a Gift Aid donor, the liability for paying back the tax fell on the charity.

Now the liability will fall on the donor - which, in effect, brings retails Gift Aid into line with Gift Aid generally.

This is good news for the sector, it would seem, but it leaves charities with something of a dilemma: should they offer to keep the responsibility? After all, the prospect of having HMRC on your back because you made a donation a few months ago would be enough to deter many donors from signing up to Gift Aid again - or even making further donations.

Robin Williamson, technical director of the Low Incomes Tax Reform Group, urges charities to think about who the affected donors were likely to be.

"People who are not paying tax are likely to be on low incomes, less than £10,000 a year," he says.

"Legally, charities might be entitled to the tax and HMRC might be entitled to pursue the donor for it, but morally it raises a set of questions."

Donors are likely to be mystified by any request from HMRC for extra payment, Williamson says.

"Instead of just cancelling the Gift Aid declaration, they'd probably cancel the gift itself and see it as just too risky to donate," he says.

"It's really up to the charities to make good the loss because the charity is not in a worse situation than it would find itself in if the Gift Aid had not been claimed in the first place."

Richard Bray, vice-chairman of the Charity Tax Group, took part in the discussions with HMRC over the changes to the guidance. He is pleased that charities are no longer obliged to make up any shortfall and that donors therefore have an incentive to ensure they are eligible before they sign up.

"CTG has always maintained the position that the donor should bear responsibility for ensuring they have paid sufficient tax to cover their Gift Aid declaration, but that the charity should have the option to make this payment on their behalf - which can be very helpful in maintaining relationships with donors - should they wish," he says.

The charity view

Third Sector asked the charities with the five biggest chains of shops whether they would consider keeping the tax liability rather than passing it on to the donor.

Julie Byard, head of retail at Cancer Research UK, which has 552 shops, said: "Given the new flexibility allowed by the changes to retail Gift Aid, we will treat each case individually to ensure that we do what is appropriate for the donor and for the charity."

A spokesperson for Barnardo's, which has a chain of 532 shops, said it would be "looking in detail at the new regulations" and said take-up rates would be more important than who had the liability.

Oxfam (680 shops), declined to comment, and no one from the British Heart Foundation (732) or Age UK (444) was available to comment.

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