Economics professor proposes 'opt-out' system to simplify Gift Aid

In response to a Treasury consultation, Kimberley Scharf of the University of Warwick says the measure would remove the need for a declaration

Kimberley Scharf
Kimberley Scharf

The government should create an opt-out scheme for Gift Aid in which UK taxpayers would be listed on a national register unless they choose not to be, an economics professor from the University of Warwick has told the Treasury. 

Kimberley Scharf, professor of economics and research area director of the Centre for Competitive Advantage in the Global Economy at the university, made the suggestion in her response to the Treasury’s consultation Gift Aid and Digital Giving, which closes on Friday. She says it would make the system simpler and less costly to provide.

One of the Treasury’s proposals is a much shorter Gift Aid declaration, consisting of 52 words instead of 111, for donations under a certain threshold, which it says would be between £1,000 and £5,000.

Under the existing rules, if a donor has not paid sufficient tax to cover Gift Aid, it is the donor ­– not the charity – that must repay the money. But the consultation proposes transferring the "liability for a charge to tax where the donor had not paid enough tax to cover the Gift Aid" to the charity.

Scharf’s response, published today, says: "An opt-out scheme is not discussed, but with such a scheme in place and liability formally transferred to charities, the issue of determining the amount of Gift Aid payable can be resolved by the charity in collaboration with the tax authorities, without the donor having to be involved in any way."

Taxpayers could be made aware that Gift Aid is a form of tax relief and related to the tax they pay by HM Revenue & Customs notifying all taxpayers in a separate communication or through their website, she says. 

Under the opt-out scheme proposed by Scharf, all taxpayers would automatically belong to a Gift Aid register unless they opted out, meaning that there would be no need for a Gift Aid declaration and no need to maintain a new and "administratively complex and expensive registry", she says. 

The measure would assume donations made by all UK taxpayers were eligible for Gift Aid and donors wanted the tax break to be claimed by the charity.

It would also achieve the aims of a shorter declaration, which is proposed because the current length is considered off-putting to potential donors, particularly those making text donations, says Scharf.

"Since there would be no need for any declaration from the taxpayer at the point of donation, it would be much simpler and less costly to administer," she says.

Scharf, who is an applied theoretical public economist with an interest in public policy, social networks and charity, spoke at the Charity Finance Group’s conference earlier this month about the behavioural responses of donors to tax incentives for giving.

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