A Bit of Light (tax) Relief? The Small Donations Bill examined

government bill

I thought I would take the opportunity provided by the Queen’s Speech to do a blog on a slightly different topic from the tax relief cap that most of my recent posts have centred on. Granted it’s still to do with government policy, tax relief and charitable giving, so it might not look that different to the untrained eye, but trust me: it definitely is…

The issue up for discussion is the Government’s proposed Small Donations Bill. Some commentators seem to have concluded that this is a new development, but in fact the original policy proposal appeared in the 2011 Budget, where it was announced that there would be a new “Gift Aid Small Donations Scheme” (GASDS) and it is this that has resulted in the need for new legislation. There is even an HMRC consultation on the design and implementation of the scheme, which closes at the end of May.

The detail of the scheme: it will allow charities and Community Amateur Sports Clubs (CASCs) to claim Gift Aid-like payments on donations of £20 or less without having to collect a donor declaration, up to a maximum of £5,000 of these donations every year. This effectively means up to an additional £1,250 per year. The official Policy Objective behind this is “to allow charities and CASCs to claim a Gift Aid style payment on donations received in circumstances where it is difficult to collect donors’ details, or where donors may be reluctant to give them.”

So, isn’t this a good idea, you may ask? Won’t it reduce the administrative burden of the Gift Aid scheme and thus make it easier for charities (particularly small ones) to make the most of the system? How could that not be a good thing? Well, I think my answer would be that the principle behind this new scheme is exactly the right one, and there are problems with Gift Aid that need to be solved. However, there are concerns both that this scheme is not actually an answer to these problems, and that even if it was; the proposed details of its implementation mean that its impact is going to be rather limited.

Here are some of these concerns:

1) This is not tax relief, but public spending. As HMRC themselves admit: “Dropping the link between the donor and the top-up payment on the donation means that payments made under the GASDS will not be repayments of tax. The GASDS, unlike Gift Aid, will not be a tax relief but will instead be funded through public expenditure.

This is precisely why the new Small Donations Bill announced in the Queen’s Speech is required, as the scheme cannot be legislated for through the annual Finance Bill process.

The problem here is that public expenditure is subject to the spending decisions of the incumbent government, so there is a realistic danger that payments through GASDS could be reduced in the future in order to effect savings. This may not be a problem as long as organisations do not become reliant on GASDS money, but it is a reason to be wary. There is also the broader concern that this scheme could set a precedent in terms of severing the link between an individual taxpayer’s right to choose to get tax relief and the money that charities can reclaim from the government. And if this turned out to be a trend, an increasing portion of charities income would become subject to political spending decisions, which would not be ideal.

2) Many small charities are not going to be able to take advantage of the GASDS scheme. The scheme requires that charities have a track record of claiming Gift Aid (they have to have made claims in at least 3 of the last seven tax years, and there cannot be a gap of more than two consecutive tax years between claims), and also that they continue to make Gift Aid claims in the future. In fact, it is even suggested that there might be a “matching requirement”, which will demand that a charity has to claim at least as much in standard Gift Aid as it does through the GASDS.

But this will surely rule out a lot of small charities? The whole point is that if they rely on small cash donations then they might well not have bothered registering for Gift Aid before now, or even if they have, they might struggle to claim anywhere near as much through Gift Aid as they would like to claim through GASDS scheme.

Chloe Smith, Economic Secretary to the Treasury, stated in the HMRC press release that: “This scheme will be particularly helpful for small charities that rely on bucket collections, which can find it impractical to get the necessary paperwork that Gift Aid requires.”

However this is not quite true if the scheme goes ahead in the way proposed in the consultation. The best that can be said is that it “will be particularly helpful for small charities that rely on bucket collections and also fundraise at least as much in other ways for which they are able to get the paperwork that Gift Aid requires.” Which is obviously a far less compelling proposition.

 3) The issue of what counts as a “charity” for GASDS is thorny. The consultation document makes it clear that HMRC recognises that there is potentially a problem arising from the fact that some charities are organised as single entities operating in multiple areas, whereas others are organised as individual but affiliated organisations. The problem is to decide whether the £5,000 maximum applies to each individual organisation or only to the parent. HMRC’s answer to this question, unsurprisingly, is that it will only apply to the parent. They have also stipulated the circumstances in which a collection of individual charities will count as “connected”, and thus will only be eligible for a single £5,000 limit. One suspects that applying this criterion will prove to be quite difficult in practice.

In many ways it seems like the right call to limit the £5,000 to the parent organisation: otherwise certain types of charities will be at an unfair advantage and there will be a perverse incentive to structure organisations in a particular way. However, for those charities that are affected by this rule, failing to get an advantage will almost certainly feel like a loss, and they will consider themselves hard done by. As a consequence of this, HMRC has inserted into their consultation one of the more mystifying pieces of policy I have seen: the “community building” clause.

This clause states that:

“If a charity runs charitable activities at meeting in a local community building then the maximum limit is increased from £5,000 (non-building) donation income by up to a further £10,000 in respect of the small donations collected in a community building by the charity carrying out charitable activities.”

There is also a further stipulation that:

“The small donations collected by each local group must be collected in the course of its charitable activities carried out in the community building. Donations made at local group activities held for non-charitable purposes, including fund-raising, or outside the community premises are not eligible for a top-up payment under the GASDS under this rule.”

So this basically means that a group of charities that are linked can in fact claim for up to £5,000 each through GASDS, in addition to the core £5,000 available to the parent organisation, as long as this £5,000 is raised “in the course of its charitable activities” carried out in a “community building”. The two main problems with this are:

A) The definition of “community building” is a “place of worship, village or town hall which is accessible to the public or a section of the public. Premises used wholly or mainly for commercial or residential purposes are not community buildings for the purposes of the GASDS.” But this then rules out many perfectly valid types of organisations that one would have thought should be right at the heart of this new policy. Hospices, for instance, would appear to be ruled out of getting the additional £5,000 allowance on the basis that their services are residential, which seems bizarre.

B) The requirement that donations are “collected in the course of [the organisation’s] charitable activities” seems particularly odd. Why on earth is separate fundraising in a building in order to raise money for charitable activities that are also going to take place in that building deemed ineligible? Surely this is how most charitable donations raised by small organisations actually come about, as the whole point is to get money from those who have it and are concerned about an issue in order to help those who don’t have it and are affected by that issue?

It is quite hard to think of that many situations in which it would be appropriate to solicit donations from the very people that you are working with in the course of your charitable activities. The only obvious example is church collections. If this “community building” clause is designed to alleviate the concerns of churches, then that should be made explicit, and there is valid question about whether it is fair to carve out a specific exemption on this basis.


4) Is this really the best solution to the problems with Gift Aid? There is clearly a problem in that Gift Aid puts a fairly hefty administrative burden on charities by virtue of being a paper-based system in an increasingly digital world, but I am really not sure that this scheme offers the answer to that problem. CAF has been arguing for a while that what is really needed is a Gift Aid system fit for the 21st century, including a universal declaration linked to a database, which would allow donors to make a one-off Gift Aid declaration that resulted in them being given a unique identifier (perhaps something as simple as an email address or mobile number) that they could then use for all subsequent donations to eligible charities without having to fill in repeated forms.

There have been encouraging signs from government that they are interested in this idea, which is good because it offers the potential of a far broader, future-proofed solution to the problems with Gift Aid than the proposed Gift Aid Small Donations Scheme.

5) Any potential benefits of the GASDS scheme will be cancelled out by the loss to charities caused by the government’s proposed cap on tax relief for donations. Sorry to bang on about this, but it remains true that unless the government does what so many of us in the charitable sector want and back down on their tax cap plan, charities are going to lose out. The policy costings from the 2011 Budget show that the government expects to lose roughly £50m in the first year as a result of claims through the GASDS, rising to £105m by the third year. Presumably this means an additional £50-105m per year for charities (ignoring possible cannibalisation of existing Gift Aid claims). This looks oddly similar to the £50-100m that Treasury estimates it will save as a result of introducing a cap on tax relief for donations, and suggests that in combination these two measures are cost neutral for the Treasury. Since current estimates put the potential loss to the charity sector as a result of the cap at £500m per year, it seems as though only charities will end up losing out.

Given all this, you may ask, am I completely against the GASDS? Well, no, not really- it will almost certainly be of benefit to some charities, and that is always a good thing in my book. My concern is that a scheme with limited application may be used by the government to deflect criticism of the far more damaging changes they are proposing elsewhere (specifically the tax relief cap). I also hope that GASDS is not seen as an alternative to proper overhaul of the Gift Aid system. If, however, neither of these fears proves founded, then I don’t really have a problem with the GASDS. I just find it hard to get that enthused about.

Rhodri Davies

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