HM Revenue & Customs has published new guidance on Gift Aid claimed on goods sold in charity shops, which removes charities’ automatic liability when the tax break is claimed incorrectly.
The updated guidance has been drawn up because concerns were raised by HMRC with several charities about whether the scheme was being run effectively and whether charities were claiming more retail Gift Aid than they were entitled to, according to Paul Knight, partner and head of not-for-profit tax at accountancy firm BDO, who took part in discussions about the changes.
Under the new guidance, charities will no longer have automatic liability to repay tax on Gift Aid items where it turns out the donor was not paying enough tax to qualify as a Gift Aid donor, because the responsibility for repayment would pass to the donor themselves.
The guidance also calls for more training for charity shop staff to help them explain the scheme to donors more effectively and for charities to carry out regular audits of their retail Gift Aid processes.
Knight said suggestions from HMRC that charities were committing what he called "low-level fraud" by claiming Gift Aid on the wrong goods were "unfounded in any direct evidence I ever saw".
He said: "Everybody who is involved in retail Gift Aid is likely to be aware of the enhanced HMRC interest, particularly about the taxpayer position and the quality of the interaction with the donor.
"The guidance is quite obviously looking to tighten up some of those areas and requires charities to think very carefully about how they manage the scheme – fundamentally, however, the guidance hasn’t put any significant barriers in the way."
In fact, Knight said, removing the risk of having to repay Gift Aid claimed on donations from non-taxpayers would allow some charities to feel confident in claiming more Gift Aid or streamlining their processes by contacting donors to ask if they are happy to go ahead with the donation only when goods have sold for more than a pre-agreed amount – either £100 or £1,000.
Charities will now also be expected to contact donors at the end of each year with a summary of how much their Gift Aid-eligible donations raised for the charity and how much tax was claimed.
A new template for these letters, which charities must begin using by 31 May, has been produced.
Charities will also no longer be allowed to run league tables charting which shops achieve the most Gift Aid declarations. According to Knight, this could help to reduce the number of people who don’t pay enough tax to have their donations Gift-Aided being signed up.
During the discussions on the drafts of the guidance, HMRC and the Charity Retail Association had worked to set a level of obligation that would be manageable for the sector, Knight said.
Steve Biddle, interim chief executive of the CRA, said: "I’m pleased HMRC has listened to our concerns and agreed a new and stronger system that will work for donors and charity shops alike.
"In the last financial year, nearly £80m was raised for charitable causes through retail Gift Aid, representing nearly 30 per cent of the total profit for the charity retail sector."
The CRA and HMRC will create a training package on all aspects of Gift Aid, which will be available to CRA members next year, a CRA spokeswoman said.
An HMRC spokesman said: "We welcome the support of all interested parties to make sure the retail Gift Aid scheme works as intended."