Initially announced as a budget pledge by Chancellor Gordon Brown, the Gift Aid review will begin with a 12-week window during which third sector organisations can advise the government on how to make the system work better.
Other key areas of the consultation are how to raise awareness of Gift Aid among donors, especially higher-rate tax payers, how to make it easier to reclaim Gift Aid on admission fees, and how to streamline the administration and audit process.
Charities will be able to make suggestions through an online survey, and can attend a series of regional and national consultation events during August and September. Meetings to be held in London, Bristol, Birmingham, Cardiff, Leeds, Edinburgh and Belfast.
A primary progress report will be produced by the winter and a second report in spring 2008. The scheme is to be led by the Treasury, with support from HM Revenue & Customs and the Office of the Third Sector.
"Take up of Gift Aid currently stands at around a third of donations, delivering support for charities worth £828m per year," said chief secretary to the Treasury Stephen Timms, speaking at the launch. "We all want to see this improve, and this consultation is the first step towards realising that goal."
Third sector minister Ed Miliband said: "I hope that this consultation will lead to practical changes that will make the system even better so that charities, both small and large, get the full benefit."