It's time to make Gift Aid less taxing

Is the sector ready for next month's Treasury consultation on the uptake of Gift Aid? Cathy Pharoah contributes to our analysis.

Gift aid administration
Gift aid administration

When Chancellor Gordon Brown announced in this year's Budget that the Treasury would consult the voluntary sector on improving the uptake of Gift Aid, it was a cause for celebration.

Since Gift Aid was introduced seven years ago, charities have tripped up on numerous problems, such as the way the scheme is administered, the amount they are entitled to reclaim and how to communicate the tax relief question to donors.

Having finally been given the opportunity to put its fears to government, however, the voluntary sector has come up with such a wide variety of proposals that it doesn't seem to know where to begin.

Can they fix it?

Two weeks ago, at an Institute of Fundraising forum to discuss the consultation, delegates put forward a huge range of suggestions on how to improve the current Gift Aid system, many of which focused on the need to make the process of claiming tax back simpler.

The institute itself wrote to Brown this month suggesting that Gift Aid should be uncoupled from the tax rate altogether. This came after the Chancellor's announcement in this year's Budget of a 2p drop in the basic rate of income tax, which the Charities Aid Foundation estimated could cost charities £70m in Gift Aid income.

The NCVO, Acevo, the Charity Tax Group (formerly the Charities' Tax Reform Group) and the Charity Finance Directors' Group propose charities should receive transitional relief for four years after the tax rate changes in order to cushion the blow.

Without unanimous accord on this issue, the question is whether the voluntary sector can come up with a coherent list of proposals to put to government when the consultation opens next month.

One of the CFDG's major concerns is that higher-rate taxpayers currently donate the same level of tax relief as those paying the basic rate and are allowed to pocket the difference as an additional incentive for giving. The CFDG believes these higher-rate donors should be encouraged to channel their own reclaimed tax back into charities to further increase the impact of Gift Aid.

Acevo, meanwhile, has reiterated its pre-Budget proposal that donors should opt out of tax relief rather than having to opt in, to ease the burden of Gift Aid administration.

"Charities should be able to assume Gift Aid unless otherwise stated," says Nick Aldridge, director of strategy and communications at Acevo. "There should be an opt-out scheme for people who are not taxpayers."

One issue everyone seems to feel strongly about is the agonising level of bureaucracy involved in reclaiming Gift Aid. "The overwhelming concern among our members is the administrative burden of the scheme, particularly in relation to the amount of paperwork involved," says Helen Donoghue, director of the CTG.

"One of our members reported that they had spent more than £30,000 scanning their Gift Aid records to ensure compliance."

Megan Pacey, director of policy and campaigns at the Institute of Fundraising, agrees.

"HM Revenue & Customs has an obligation to make sure that the systems and necessary effort are fair and reasonable on both sides," she says. "Especially among smaller charities, the problem is that Gift Aid claims are not all logged on a computer system; they are sitting in a shoebox somewhere, which makes it difficult to get everything in order."

But Nick Brooks, head of not-for-profit at accounting firm Kingston Smith, believes this is a problem for charities to sort out internally.

"I'm not sure there's anything HMRC could simplify," he says. "As tax schemes go, it's pretty simple. If you have a reasonable administration, it's really not difficult."

One possible solution to the mountain of paperwork would be a Gift Aid tax register for charities, so that details of donor tax status could be held centrally within the voluntary sector and each individual charity would not have to research and file the information separately.

"This would particularly help medium-sized and smaller organisations and reduce the costs of collecting tax on smaller donations, which many charities currently leave out of the tax reclaims," says Cathy Pharoah, former director of research at the Charities Aid Foundation and a voluntary sector consultant.

Whether such a register can be compiled without falling foul of data-protection laws is a matter for the Treasury officials who are leading the review. For voluntary sector bodies, the most pressing concern is to create a consensus of proposals in time for their meeting to discuss the issue on 13 June.

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