The Gift Aid tax gap

Emily Deane TEPSTEP is working with HMRC on a Gift Aid working group set up to explore options to maximise the amount of Gift Aid that charities can claim on donations, together with ways of increasing customer understanding of the system and how it works. HMRC is also investigating opportunities to improve the way that Higher Rate Relief is claimed; and whether it works as intended, is future-proof and provides the relief in the best way possible.

HMRC began the process by instructing an external research company to look into charitable giving and the use of Gift Aid. Its specific objectives were to estimate the value of the Gift Aid tax gap and unclaimed Gift Aid, and develop an understanding of correct and incorrect behaviours among donors.

The report has found that 25 per cent of the value of donations made in the 12 months prior to interview did not have Gift Aid added to them where the donor was eligible, contributing up to GBP560 million to the value of unclaimed Gift Aid. This represents potential missed income for charities and is generated by eligible donors who only sometimes (30 per cent), or never (18 per cent), add Gift Aid to their donations. It is mostly driven by a lack of opportunity for donors to add Gift Aid, and to a lesser degree, by failing to understand what Gift Aid is, or where they are eligible to add it.

The report also finds that 8 per cent of the value of donations had Gift Aid incorrectly added to them by ineligible donors, generating a Gift Aid tax gap of up to GBP180 million. This is caused by ineligible donors who always (5 per cent) or sometimes (10 per cent) add Gift Aid, partly where they do not understand the relief, and partly where they misunderstand what it means to be a taxpayer. This has resulted in donors who are not taxpayers attempting to add Gift Aid, where they are not eligible to do so.

Better understanding of these issues would lead to a drop in Gift Aid claims among ineligible donors, and a rise in claims among eligible donors. It was recommended to provide information about (1) Gift Aid eligibility criteria (ie clarifying what it means to be a UK taxpayer, and that the donor must be one to add Gift Aid to their donation) at every opportunity, and (2) the benefits of Gift Aid at the point of donation; to help effect the change.

The report, Charitable giving and Gift Aid research, is published today, accompanied by a press release issued by HM Treasury and HMRC.

If you have any questions or suggestions please email STEP’s Technical Counsel – Emily.Deane@step.org.

Emily Deane TEP is STEP Technical Counsel

The UK Budget and donor benefit rules for charities

Emily Deane TEPThree years ago, the UK government’s Autumn Statement 2014 announced a review of the Gift Aid donor benefit rules with the intention of simplifying them. Following a call for evidence, it launched a consultation on 18 February 2016 setting out a range of options.

The responses helped develop specific proposals for reform, which were set out in a second consultation that ended on 3 February 2017. We have been informed that a summary of responses to the second consultation will be published on 1 December 2017.

This week the government announced that it would replace the current three-tier thresholds with two tiers. Under this reform, donors will be no worse off in terms of the value of benefits that charities can offer them, as the new limits will be, for every eligible donation, at least as generous as the current limit.

Current system

The current donor benefit limits (the relevant value test) is a set of monetary thresholds that determines the value of benefits that charities may give to donors as a consequence of a donation and still claim Gift Aid on that donation. These are:

• For donations up to £100, the value of the benefit can equate to a total of 25% of the donation.
• For donations between £100 and £1,000, the value of benefits is capped at £25.
• For donations over £1,000, the value of the benefit can equate to a total of 5% of the donation, up to a maximum annual benefit value of £2,500.

New system to be introduced

Under the new limits, the benefit threshold for the first £100 of the donation will remain at 25% of the amount of the donation. For larger donations, charities can offer an additional benefit to donors, up to 5% of the amount of the donation that exceeds £100. Some examples are provided in the table below. The total value of the benefit that a donor can receive remains at £2,500.

Extra statutory concessions

The government also announced that it will bring into legislation the four extra statutory concessions that currently operate in relation to the donor benefit rules.

Time-frame

Legislation to make all the changes will be introduced in Finance Bill 2018-2019 and will come into effect from 6 April 2019. Draft legislation will be published in 2018.

Examples of how the new benefit thresholds will work:

Size of donation (£) Existing relevant value test  – size of donation
determines level of benefit (£)
Planned relevant value test from April 2019 (£)
70 17.50 17.50
100 25 25
400 25 40 (25% of 100 (25) plus 5% of 400-100(15))
1,000 25 70 (25% of 100 (25) plus 5% of 1,000-100(45))
1,500 75 95 (25% of 100 (25) plus 5% of 1,500-100 (70))

STEP will continue to liaise with HMRC’s Charities Tax Team in this connection.

Emily Deane TEP is STEP Technical Counsel