Editorial: Gift Aid is under-used and abused

The National Audit Office report on Gift Aid is a tale of disappointment, writes Stephen Cook

Stephen Cook
Stephen Cook

The National Audit Office report on Gift Aid is in some ways a story of disappointment, greed and untapped potential. This vital tax relief for charities provides 2 per cent of all charitable income, but is clearly not working as well as it might.

The disappointment is twofold: first, the total Gift Aid claimed has not gone up in real terms since the changes in 2000 that were intended to promote greater use. Adjusted for inflation, the total in 1999/2000 was £1.060bn, compared with £1.040bn in 2012/13.

Second, the provision in those changes that gives a tax break to higher-rate taxpayers has been well used: the amount claimed has risen from £130m in real terms in 1999/2000 to £940m last year. Wealthier people appear to have taken the benefit without necessarily seeing it as an incentive to give more.

The greed is evidenced by figures showing that Gift Aid has spawned eight marketed tax-avoidance schemes and that HM Revenue & Customs is investigating 1,800 cases related to those schemes. Tax reliefs attract the sharks like blood in the water, and about £170m of tax is estimated to have been lost in Gift Aid fraud, avoidance and error last year.

And then there's the untapped potential: as the Charity Finance Group points out in response to the NAO report, the number of registered charities is far in excess of the number of charities registered with HMRC, which suggests that many organisations that could claim do not do so.

The reaction from the voluntary sector is, in part, the usual cry of "the government must do more". And so it should, in terms of making the system as accessible and efficient as possible. The CFG points out that tighter scrutiny and compliance measures could go hand in hand with a simpler, more user-friendly system.

But it is unrealistic to expect HMRC to promote the system - it's not in its DNA to invite people to take away its tax revenues. It's up to the sector to widen the use of Gift Aid, not least so that government cannot use low take-up as an excuse for not helping charities in other ways.

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