Two years ago, my essay for the Giving Green Paper recommended a reform to Gift Aid, which would enable charities to claim the tax relief on a larger number of donations made through digital channels, while reducing the burden on donors:
“Allowing charities and companies to offer a “universal” Gift Aid declaration, in which donors could enable Gift Aid to be claimed across all eligible charities, would give the fundraising world the basis for exploring a more efficient and better adopted system.”
Since then, attention in the sector has focused on the feasibility of building a database of such declarations, accessible to all donors and all charities, while remaining secure. Since HMRC has refused to fund or manage such a database, it would be down to organisations in the sector to set it up. Charities Aid Foundation has shown the most interest in taking the project on, and costed it at around £1m.
There remain significant problems with take-up and awareness of Gift Aid in general.
- £750m in Gift Aid goes unclaimed each year, and 32% of the public have never heard of tax-effective giving. (CAF Research Paper, April 2009, p10; CAF estimate)
- Gift Aid is claimed on less than 5% of text donations (Res Publica 2010, Digital Giving)
- Three quarters of small charities find Gift Aid complex and time-consuming, and 80% of small charities (in one sample) do not claim Gift Aid on any form of donation below £5. (Small Charities Coalition Survey and various 2010, Gift Aid Simplification Survey – Headline Findings )
- Each Gift Aid claim costs HMRC around £5 to process (Res Publica 2010)
Many in the sector have called for a universal register of Gift Aid declarations, as a potentially complete solution to the problem. There are certainly some operational obstacles to overcome in developing it:
- Incentivising take-up of the database by private donors, who may be resistant for reasons of privacy, and at present have limited incentive to bother
- Enabling and training charities to interrogate the database using a variety of potential unique identifiers for donors (e.g. mobile no., email, surname, postcode), while protecting personal data with the requisite level of security
- Some charities may also wish to retain the practice of using individual Gift Aid asks as an opportunity for further donor engagement
As a first step, I’ve recommended that the Government use this budget to make such a system legal in principle. They could do this by removing the requirement for Gift Aid declarations to name the specific charity to which they apply, which is set out in a Statutory Instrument, the Donations to Charity by Individuals (Appropriate Declarations) Regulations 2000. Around 3,500 Statutory Instruments are introduced each year (more than 20 for each day the Commons sits).
This seems particularly appropriate, given that donors must refer to all their donations each time they make a declaration: HMRC’s suggested declaration states that “I have paid …tax…at least equal to the amount… all the charities…I donate to will reclaim on my gifts for that tax year.”
I briefly outlined some of the benefits for Third Sector recently, which are as follows:
- Giving Platforms such as JustGiving, Virgin Money Giving etc could collect a single declaration per donor, rather than needing one for every donor/charity combination. This would reduce friction for donors, and increase Gift Aid take-up.
- Platforms that enable direct giving to multiple charities, e.g. PayPal and Link Cash Machines, could collect a single Gift Aid declaration for all donations and pass copies to the benefiting charities. This might significantly increase giving through those channels.
- The sector could continue to explore and develop a universal Gift Aid register, without any legal obstacle.
Since the proposal is relatively minor and straightforward, and doesn’t necessarily imply a government-led overhaul of the Gift Aid system, I am optimistic that we might hear something positive on Wednesday.