A universal Gift Aid declaration database should be introduced to simplify the system and stop donors filling in countless Gift Aid forms, according to the Charity Tax Commission’s final report.
The report, which was released today, also calls for payroll giving to be made mandatory for all but the smallest employers and for charities to publish in their annual reports what tax reliefs they receive.
The commission was set up in 2017 by the National Council for Voluntary Organisations, but worked independently of the umbrella body.
It was chaired by Sir Nicholas Montagu, former chair of the Inland Revenue, which has since become HM Revenue & Customs.
The report says a universal Gift Aid database would simplify the administration of the tax break, with donors filling in a single form that would then be submitted to a central database.
The database could then be accessed by charities to ensure a donor was eligible to claim Gift Aid, using either a national insurance number or another unique number to identify the donor.
The report argues that this would provide a better customer experience for donors, increase take-up of Gift Aid and help HMRC eradicate incorrectly claimed Gift Aid.
Payroll giving should be made mandatory for all employers apart from the smallest companies, the report says, to increase take-up of the relief.
The report does not specify what the minimum size of company should be, but suggests that a system similar to that used for pension auto-enrolment could be adopted.
The charity tax relief system should be made more transparent, the report adds, with all charities with annual revenues of more than £1m publishing in their annual accounts what money they receive from Gift Aid, business rates relief and, possibly, VAT relief.
Better data and published statistics from the government on how much tax relief individual charities receive should also be introduced, the report says, including publicly released figures from local authorities on business rates relief.
The report says that long-term reviews should be carried out into Gift Aid, business rates relief and – depending on the final terms of Brexit – VAT to address any inconsistencies or imbalances in the existing systems.
Other recommendations include redirecting higher-rate relief to charities on top of the basic-rate relief they already receive and consulting on extending business rates relief to wholly-owned charity trading subsidiary companies.
VAT rules for charities that share facilities, equipment and buildings could also be changed, the report says, to remove the irrevocable VAT those charities face.
The report suggests that public bodies should provide the VAT status of any funding they are making available to charities, which would save charities from having to investigate this for themselves.
The report sets out three rules for judging the effectiveness of charity tax treatments: whether there is functional activity towards a particular social good or public benefit; whether they increase individual donations to, participation in and support of charitable activity; and avoiding disincentives and encouraging greater efficiency, effectiveness, collaboration and innovation in the charity sector.
HMRC said that it always kept charity tax reliefs under review, but it had "no plans to make changes at this time".
John Hemming, chair of the Charity Tax Group, welcomed the report, but said it was disappointing that the commission had limited itself to fiscally-neutral proposals, which he compared with "moving money from one pocket to another in the same pair of trousers when you have outgrown the trousers".
He added: "The evidence strongly suggests that the added socio-economic value of freeing charities from some of the tax burdens that they face would more than outweigh any additional cost of reliefs, because any additional money released would be invested in providing additional facilities and services."