CAF rejects Gift Aid reform concept

The Charities Aid Foundation has come out against a radical Gift Aid reform proposal put forward by six sector bodies, warning that it could alienate donors.

The Charity Tax Group, Acevo, the NCVO, the Institute of Fundraising, the Charity Finance Directors’ Group and the National Church Institutions last week suggested that charities should be allowed to claim a fixed percentage of their total donations in Gift Aid based on an estimate of the proportion of donors who are taxpayers (Third Sector Online, 1 October).

But CAF’s submission to the Government’s Gift Aid review rejects the idea and says that any changes to the Gift Aid system need to be focused on encouraging donors to give in tax-efficient ways and making it easier for charities to claim Gift Aid.

The submission warns against proposals that would turn the system into a “fixed pot of money available to the sector” instead of an “incentive to greater giving”, warning that removing donors’ control over their giving risked alienating them.

“The composite-rate argument is attractive to those wishing to ease the administrative burden of charities, but its proponents fail to understand that Gift Aid is a donor incentive and is not in the gift of the charity or the Government,” the submission reads.

It also rejects the idea of making Gift Aid an opt-out system in which the presumption would be that donors wanted the charity to claim Gift Aid on their donations. It says such a move would “in essence move Gift Aid from a tax rebate to a grant system” and erode the principle of donor choice.

John Low, chief executive of CAF, said Gift Aid was essentially donors’ money, which they could choose to pay as tax or give to charity. “It is within the gift of the donor and it is important that Gift Aid remains so,” he said. “While it’s clear that incentives do not in themselves stimulate altruism, many donors consider them to be an important palliative to the ‘pain’ of giving and therefore they should be protected and nurtured.”

The report sees “merit” in proposals for a transitional Gift Aid rate to limit the sector’s losses from the forthcoming reduction in the basic rate of tax, but worries that it might distract the sector from “focusing its efforts on improving its performance in reclaiming Gift Aid”.

The submission reads: “If such transitional relief were to be forthcoming, every effort should be made by HM Revenue & Customs and government to ensure the potential £70m in relief did not hide the real prize: £700m in unclaimed Gift Aid.”

CAF’s submission also opposes the Institute of Fundraising’s proposal to reverse the rules on corporate Gift Aid so that the tax relief claimed on donations would go to the charity and not, as at present, the company. It says this would lead to an even greater administrative burden on charities and might prompt companies to reduce their giving in order to compensate for the loss of tax benefit.

Proposals outlined in the submission include a flat rate of Gift Aid reclaimable on cash collections, a personal tax incentive for people setting up charitable trusts, an insurance scheme for charities found to owe money after a Gift Aid audit and the provision of incentives to independent financial advisers to encourage their clients to give to charity in a tax-efficient way.

Meanwhile, CAF has also called on charities to be financially transparent ahead of its Charities Online Accounts Awards, which recognise organisations for the availability, clarity and accessibility of their online financial reports.

“By keeping the public informed, charities are more likely to secure their trust and turn them into regular, committed donors,” said Low.

What is the best proposal for Gift Aid reform? To have your say, vote in the Third Sector poll by visiting the home page.

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