Editorial: A bold and incisive idea that would end nit-picking Gift Aid bureaucracy

When the subject was last out in the open, the main sector umbrella bodies and representative organisations were searching for a common view on what to ask for from the Government in their responses to the review of Gift Aid.

Stephen Cook
Stephen Cook

For example, the Institute of Fundraising was resisting the proposal from other groups to seek transitional relief for the estimated £80m in Gift Aid the sector will lose as a result of the drop in the basic rate of income tax from 22 to 20 per cent in April next year. Instead, the institute wanted to try to persuade the Government to detach Gift Aid from the tax rate and fix it at the current rate of 28p in the pound, thus making transitional relief unnecessary (Third Sector, 23 May).

Things have now moved on and the institute has come out in favour of transitional relief after all, dropping the rate-fixing proposal that others found, at best, perplexing. This has apparently cleared the way for it and other organisations to line up behind a more promising idea - that the Government should adopt an accounts-based method of calculating Gift Aid (Third Sector Online, 1 October).

The proposal is that exercises would be carried out to determine what proportion of donors are taxpayers, and that same proportion of the amount of voluntary income declared in a charity's certified accounts would qualify for Gift Aid. This idea, based on a method used by HM Revenue &Customs to bill businesses for VAT, has most recently been urged on the sector by Professor Adrian Sargeant, the former Bristol academic who now teaches in the US (Third Sector, 18 July).

The beauty of the proposal is its relative simplicity, and one of its strengths is that all the representative bodies are in favour of it and can now be expected to push hard. This puts the ball firmly in the Government's court, and the response from ministers will be an indication of the sincerity of its declared wish to improve Gift Aid for charities.

Soon after the review was announced in the Budget, Ed Miliband, then Minister for the Third Sector, emphasised that the Government was open to all ideas and was particularly keen on approaches that would encourage more small charities to use Gift Aid. Well, here is a bold and incisive idea that would do away with much of the nit-picking bureaucracy that puts many small charities off the scheme because they perceive the cost of compliance to be greater than any potential gain.

A lot of well-informed people seem to want it - more than 80 per cent of respondents to a membership survey by the Charity Finance Directors' Group were in favour. It could go a long way towards pulling in the estimated £700m of unclaimed Gift Aid each year - the institute reckons it could boost claims by £400m.

Alongside the excellent accounts-based proposal, a number of other reforms, some of them long overdue, were also urged on the Government by the sector bodies last week. High among these were transferring to charities the benefits that higher-rate taxpayers can currently pocket from using Gift Aid, deeming all goods donated to charity shops as eligible for Gift Aid and devising and implementing a less onerous and daunting audit process by HMRC - a process that for many charities is, in the understated phrase of the CFDG, "not a helpful and positive experience".

Stephen Cook is editor of Third Sector

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