Analysis: Small donations tax relief has yet to really take off

It is meant to cut red tape, but the Gift Aid Small Donations Scheme has started slowly, finds Sam Burne James

Churches were considered likely to benefit from the Gift Aid Small Donations Scheme
Churches were considered likely to benefit from the Gift Aid Small Donations Scheme

The Gift Aid Small Donations Scheme was, the government hoped, going to be worth hundreds of millions of pounds to the charity sector. Under the scheme, which was launched in April 2013, charities can claim Gift Aid-like relief on up to £5,000 of small cash donations each year – meaning a potential £1,250 extra in their kitties – without needing to supply individual paperwork.

The sector liked the sound of this: 51 per cent of 600 individuals surveyed for Third Sector's State of the Sector 2014 poll in July 2014 said they believed the GASDS would have a positive impact on the sector – a much higher rate of approval than for any of the other 14 policies in question.

But the scheme has got off to a slow start. In its first year, it paid out only £7m to charities, according to initial HM Revenue & Customs estimates in April. To rub salt into that wound, this was revised down to £6m in June.

Churches were seen as major likely beneficiaries of the scheme. The Church of England's administrative support website Parish Resources says the scheme could benefit parishes by more than £15m annually and that it should be "pretty simple to operate". Neither prediction has so far been the case. John Preston, national stewardship adviser at the church, says that the GASDS "is, in principle, a great scheme", but HMRC's view of how the church is organised means this cannot easily be translated into practice. "We dispute HMRC's analysis and want to challenge it," Preston says. "But it is clear the scheme's take-up has been significantly reduced by the additional red tape imposed."

A major reason other small charities haven't used the scheme is that they need a history of successful Gift Aid claims. Barriers such as this to claiming Gift Aid were exactly what the GASDS was supposed to overcome. "For large charities, £1,250 is barely worth the effort, and little charities might not have the years of clean records," says Tony Steinthal, a charity tax partner at the accountancy firm Chantrey Vellacott. "We give regular presentations to charities at which I talk about what you need to do, and people say the scheme seems too much effort for too little reward. Those that do think about it don't do so for long."

In an attempt to find ways to improve the scheme, three charity umbrella bodies – the Charity Finance Group, the Institute of Fundraising and the National Council for Voluntary Organisations – gathered evidence from charities over the summer. They will not be publishing their full findings, but it is understood that two major insights are that there is not enough awareness of the scheme and it is overly complex.

Before the scheme was introduced, the government agreed to review it in 2016. It is still committed to doing this, according to HMRC. In the meantime, the taxman is working with umbrella bodies and stakeholders to improve the scheme.

"We are committed to ensuring that charities claim through the GASDS on as many eligible donations as possible," says an HMRC spokesman. "Our charities outreach team is working with charities, particularly small volunteer-run ones, to raise awareness and help them access all the reliefs they are entitled to." He says the early indications are that more charities are using the scheme in the current tax year. Whether uptake reaches predicted levels remains to be seen.

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