Ministers move to boost tax breaks on small gifts

A consultation on the Gift Aid Small Donations Scheme has been launched to address the disappointing uptake. Liam Kay reports

Small donations: do proposals go far enough?
Small donations: do proposals go far enough?

The introduction of the Gift Aid Small Donations Scheme three years ago promised to create an extra source of income for charities in otherwise financially straitened times. And the scheme has, for those who have signed up, been a success in broad terms.

The GASDS allows charities to claim Gift Aid-like relief on up to £8,000 of small cash donations - defined as donations of £20 or less - each year without paperwork for each individual claim. And this has been especially beneficial for small charities. For example, for St John's Muxton Church, based in Telford, Shropshire, the GASDS has added an extra £750 in income on top of the £12,000 it claims in Gift Aid.

But despite the benefits, take-up of the GASDS has been disappointing and has prompted the government to consult on reforms to enhance the scheme's impact, with a Small Charitable Donations Bill to be introduced afterwards. According to the consultation, which closes on 1 July, the scheme attracted £21m of claims from 19,300 charities in 2014/15. This is a large amount, but it is significantly below the £135m government ministers claimed the GASDS would raise for charities by 2016/17. Proposals in the consultation include changes to the eligibility criteria. Under existing rules, charities have to have paid Gift Aid for two out of the previous four years or have been registered for the system for the previous two tax years. The consultation recommends scrapping these rules and making all charities claiming Gift Aid in the previous year eligible for the scheme.

But there are concerns that the proposals do not go far enough. Andrew O'Brien, head of policy and engagement at the Charity Finance Group, says the scheme has been a positive policy, but needs major reform. He says that steps need to be taken to raise awareness of the scheme and address its perceived complexity.

Before the launch of the new consultation, the CFG, along with other representative bodies, called for a number of changes to the GASDS, including making all non-Gift Aid donations under £20, whether cash, cheques, text or digital donations, available for the scheme. Instead, the consultation makes provision for contactless payments, but not for other currently excluded payment types.

Other proposals championed by the CFG include removing the matching requirement, which says that charities must claim £1 in Gift Aid for every £10 claimed under the GASDS. The government claimed in its consultation that only 8.5 per cent of charities did not claim enough Gift Aid to meet the matching rule, so the rule was reasonable and should be retained.

The Charity Tax Group says reform is needed. "While the scheme provides very useful relief - particularly for smaller charities - positive changes are required to improve uptake, which is still too low, and improve accessibility," a spokesman for the CTG says. "We will continue to work with officials to improve guidance and ensure that there is less complexity for charities."

O'Brien says that eligibility rules should be relaxed further, with all Gift Aid-eligible charities also made eligible for the GASDS. The changes should accompany measures to increase awareness of the scheme and, he hopes, encourage more applicants.

O'Brien says: "As a policy it is well thought out, and as a mechanism it will help charities. But it's not a question of just tweaking it - there are some big changes they need to make if they are to make the scheme work effectively.

"We shouldn't lose face or lose confidence in the GASDS. But we shouldn't settle for second best either - we should keep pushing for the best possible system."

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