Small Change: where have we got to with the Small Donations Bill?


It has been a while since I blogged about the Small Donations Bill (last update here), but don’t let that fool you into thinking it has gone away. Oh no. It has in fact been in the process of becoming perhaps the most consulted-upon piece of legislation in recent memory.

In addition to the standard 8-week consultation on the original policy, and HMRC/Treasury working groups on the technical details, the Bill also became only the second one to be opened up to a “Public Reading Stage”, in which interested members of the public were able to give their thoughts in agonising, line-by-line detail on every aspect of the Bill. And even then, the consulting was not over: most recently, CAF (along with a number of other experts) was called to give oral evidence to the Public Bill Committee in Parliament, and they are now in the process of considering potential amendments to the legislation.

Let me say first off that I heartily approve of genuine consultation and making the legislative process more democratic, I really do (despite the additional work it has made for me and many others in the sector…) However, the dispiriting thing is that I’m not sure whether all the consultation has really got us anywhere in this particular case. In the evidence CAF’s CEO John Low gave to the Public Bill Committee (watch the video here), he was having to reiterate many of the points we had made in our original response to the consultation on the policy. In particular, the general argument that HMRC’s fear of fraud had led to disproportionately complex eligibility requirements for the new scheme, which would have the effect of discouraging or disadvantaging many small charities.

This is frustrating because I believe, like many others do, that the original policy objective behind the Small Donations Scheme is spot on, namely:

“To enable charities and CASCs to claim a Gift Aid-style payment in circumstances where it is difficult to collect donors’ details, or where donors may be reluctant to give them.”

When the idea of a Small Donations scheme was first announced, it seemed like an obviously positive move: there are a lot of small charities that struggle to access the Gift Aid system because of the sorts of donations they receive, so giving them the opportunity to get comparable benefits in a slightly different way would be a great help. What has become clear subsequently, however, is that HMRC’s attitude to fraud prevention is a real barrier to realising this vision, and that the way the legislation has been put together means that the policy objective will not be met.

I am not going to rehearse the arguments against individual clauses in the Bill, as I covered these in detail in the earlier blog post, but suffice it to say that the three biggest problems to my mind (in order of importance) are the matching requirement, the three year track record requirement, and the community buildings rules. What I want to do briefly here instead is look at a couple of broader points about the balance between fraud prevention and access to the scheme, which might give us an idea of how we have got to where we are.

1) It is important that the debate is not characterised as “HMRC wants to prevent fraud, but charities don’t care about it”. Charities clearly care about fraud in their sector, as in the majority of cases it is charities that suffer as a result of fraud, either financially or reputationally, so it is in their interest to work as hard as they can to minimise fraud. The debate is actually about whether in their desire to reduce the risk of fraud, HMRC are actually strangling the life out of the scheme, when they could have perfectly adequate fraud prevention without doing so.

2) Should HMRC even be dictating the fraud prevention measures required? What I mean by this is that, unlike Gift Aid, payments through the Small Donations scheme will not actually be tax relief at all, but public spending. This is something that HMRC and Treasury have been quite clear about themselves. However, their approach to fraud prevention very obviously comes from the perspective that payments through the Small Donations scheme should be treated as if they were tax relief. In HMRC/HMT’s recent response to the comments received during the Public Reading Stage, on the question of the matching requirement, they stated that:

” element of matching remains vital to ensuring the scheme is protected from fraudsters and the small minority who seek to take advantage of the generous tax reliefs on offer to charities.

The fact is however, that this is not tax relief, but public spending, so in essence the Small Donations scheme is a Government-administered grant scheme (albeit an objective rather than subjective one). Given this, perhaps a more appropriate template for fraud prevention would be other grant schemes such as the Big Lottery Funds Awards for All scheme?

3) HMRC has said on a number of occasions that the Small Donation Scheme is more open to abuse than Gift Aid because there less stringent requirements in terms of paperwork in order to claim through the former. This is undoubtedly true (and of course, the whole point of introducing GASDS in the first place), but the other side of it is that claims through GASDS are capped at only £1,250 of repayments per organisation per year (possibly £2,500 if there is also an eligible community building). This is in contrast to Gift Aid, which is uncapped, and where there is consequently greater potential for fraud on a serious scale.


4) Isn’t it enough that a charity has registered with HMRC for tax purposes? It would seem to be reasonable to require organisations to register with HMRC in order to access GASDS, in the same way that they currently have to in order to take advantage of the various charitable tax reliefs. And in order to do this, the organisation would have to pass HMRC’s “fit and proper” test in any case. Is it really then necessary to demand that the organisation also has to have a three year track record of making Gift Aid claims, AND that it continues to claim half as much in Gift Aid as it wants to in small donations?

 Taking these points together, we can seethat:

This is not tax relief, but public spending

The amounts available through the scheme are capped at a low level

There are existing rules in place that offer reasonable protection against fraud

In this light, the stringent measures introduced into the Bill to combat fraud look entirely disproportionate.

The real pity will be that if the opinions of experts from the charity sector are ignored, not only will the many hours of work that a range of organisations have put into trying to work with the Government to improve this legislation be wasted, but the Small Donations scheme itself could end up as a real damp squib.

 Rhodri Davies

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