New Gift Aid was introduced by the then Chancellor, Gordon Brown, as part of his ‘Get Britain Giving ‘campaign. One of the objectives was to raise the UK level of donations from around 0.5 - 1% closer to the US level of 1.5 - 2%. So increasing money for charities is an effect of Gift Aid, not its objective. If 10 millionaires each gave £10 million to charity, this would mean an additional £100 million for charity, and with Gift Aid, the total amount would be £128 million. Although this would be most welcome for charities, it would not be a success for Gift Aid.
Much has been talked about regarding Gift Aid and making it simpler. Unfortunately, this has now been going on for number of years and nothing much has happened, except that with each passing year an estimated further £800 million is lost to charities through unclaimed Gift Aid.
Rounds of talks ineffective
The new government's Economic Secretary to the Treasury Justine Greening and Minister for Civil Society Nick Hurd held their first Gift Aid forum meeting with sector leaders at the Treasury on 10th June. Generally the feeling was that the talks "didn't make any real progress". The sector is calling for some major reforms, including the opt–out option (all donations would automatically qualify for Gift Aid unless the donor opted out), removal of the high rate tax-payer benefit, introduction of a composite rate (suggested at 23%) - which would apply to all Gift Aid donations, and the extension of the transitional tax relief for a further 12 months after April 2011.
But these continuing rounds of talks have become so ineffective that Stephen Bubb, Chief Executive of ACEVO has reported on his blog that he "had become so frustrated by inaction and bluster from the Treasury I had withdrawn from the so called "Gift Aid Forum"."
Existing rules are sufficient
And the reality is that existing Gift Aid rules and regulations contain sufficient flexibility and mechanisms which would allow Gift Aid recovery to be increased and improved immediately, primarily by doing the ordinary things properly. For example, Gift Aid requires that specific items and statements are included on all Gift Aid declarations. Yet how many charities actually have anyone one person or team who is actually responsible for all Gift Aid declarations – a Gift Aid declarations 'gatekeeper'? Charities are very particular about their brand and image and always make certain that the charity number and VAT number and statements are compliant on all their documentation and literature. So why not on Gift Aid which would then make all their claims compliant and remove the fear of fines and penalties in the event of a n audit?
The 2008 Budget introduced even more steps to simplify the Gift Aid process. The Extrapolation ruling allows repairing of errors identified in a population within an audit and the De Minimis ruling sets out new reduced penalties where errors are below a certain level. This is in addition to existing but little-known and used mechanisms within the Gift Aid regulations which allow for optimising and validating Gift Aid declarations.
Other opportunities to improve Gift Aid recovery
There are also other opportunities for improving Gift Aid recovery without actually requiring any changes to existing Gift Aid regulations and which consequently could be implemented almost overnight. Payroll giving is a mechanism of tax-efficient giving which is wholly managed by agencies - Payroll Giving Agencies (PAG) - approved by HMRC. The agencies charge a small amount, but by paying this the charities avoid any other admin costs, such as employing their own staff.
The same approach could be adopted for Gift Aid, and is in fact being done by companies which offer online donations. So why not extend this to all of Gift Aid? Get organisations such as accountants, financial advisers, tax consultants, fundraising agencies and possibly even PAGs to undertake the whole Gift Aid functions. Charities could then release staff currently employed on (inefficient) Gift Aid management and administration to focus on what they are really there for - fundraising and meeting the objectives of the charity.
Joint ventures with financial sector?
Finally, there are some very exciting and innovative opportunities which could be implemented by large scale joint ventures and co-operation between the third sector and the financial markets. The financial sector, represented by the banking sector which operates accounts for individuals, are able to offer a complete secure donations service, including the total recording and processing of Gift Aid.
The net effect of this would be that a donor could elect to make a donation to any charity of his/her choice and only ever need to make one single universal Gift Aid declaration. The donation would be totally secure and completely in accordance with all of HMRC Gift Aid regulations. The charity would also receive all the funds, including all the Gift Aid without having to submit a Gift Aid claim.
From HMRC's point of view they could rest easy in the knowledge that in the event that they wished to carry out an audit they would know that they would be dealing with a professional organisation which would have carried out the Gift Aid recording and recovery in accordance with their requirements and would have all the evidence to hand, ready for audit and inspection.