Barry Gower of H W Fisher & Company explains how to transform charities' finances with Gift Aid.
When the Gift Aid scheme was introduced in 1990 it appeared to be one of the most important innovations in the history of the voluntary sector, with the potential to transform charities' finances. Unfortunately, the results have been far less beneficial than many hoped. Why is that so and what can be done?
Gift Aid allows basic-rate tax relief to be reclaimed on gifts of money to from individuals and close companies. A number of changes have been made since its introduction, the most significant in April 2000 following the Charities' Tax Review (Finance Act 2000). This abolished the minimum threshold of donation of £250 and introduced a simplified Gift Aid Declaration.
This allowed declarations to be made not only in writing but electronically (via e-mail and the Internet). It also removed the requirements for a signature and even catered for declarations to be made orally, whether in person or remotely - by telephone or radio pledge, for example.
As an added incentive, higher rate tax-payers are now able to claim income tax relief on the difference between the basic and higher rates of tax for the amount given. Originally, gifts had to be worth between £600 and £5 million to qualify. The upper limit was abolished in 1991, and the minimum limit was lowered to £250 in 1993.
Although these changes improved matters, the results are still disappointing. Accurate figures are difficult to obtain, but it is estimated that Gift Aid recovery is currently no higher than 30 per cent and probably rather less.
To put this in perspective, consider a charity with donations of £1million, and assume that it is recovering 25 per cent of Gift Aid. If this could be increased to 35 per cent (surely not an unrealistic target) the result would be an additional £28,000 per annum. But recoveries can go back to April 2000. The potential sum is therefore £84,000, all from a modest increase in Gift Aid efficiency.
How can we help?
One important reason for the poor results is that few charities have considered the implication of the simplified declarations. Accordingly, many continue to produce Gift Aid forms that are needlessly complex, and which undoubtedly act as a disincentive to donors.
When we advise charities on these matters, our first step is always to ensure that their Gift Aid forms are correct and take full advantage of the relaxation of the rules. But the real opportunity lies in finding a means of encouraging donors, present and past, to make a declaration. This is at the heart of our Gift Aid service for charities, which we call GAIN (Gift Aid Income Now). GAIN consist of two related services: consultancy - which I will describe in a moment - and outsourcing.
In essence, our outsourcing service means we effectively act as a charity's Gift Aid recovery department. With the prior agreement of our clients, we contact donors to encourage them to make Gift Aid declarations and ensure that they are correctly and legally completed.
We process all Gift Aid claims on a timely basis and submit them to the Inland Revenue, bearing in mind the need for regular cash flow and proper accounting. If our clients wish, we also provide a payment and banking service by liaising between the Inland Revenue and a charity's own bank. Finally, we provide a full reporting service on the effectiveness of a charity's Gift Aid recovery programme.
Perhaps some charities may be attracted by this idea, but are concerned about costs. As we are entirely confident about our ability to recover worthwhile sums, we base our fees purely on a percentage of the additional revenue we generate. Should we be unsuccessful (very unlikely, I believe) there will be no fees at all.
As well as outsourcing, I mentioned consultancy. Here, our services cover the following:
A full assessment of a charity's fundraising programme to determine the suitability for Gift Aid.
A review of a charity's activities to ensure cost effective use of Gift Aid. For example we will evaluate the idea cut off point below which collection of Gift Aid is not viable.
A complete analysis of the data base to identify donations that could qualify for Gift Aid.
A review of the Gift Aid declaration forms to ensure they comply with Inland Revenue requirements and are not unnecessarily complex.
I began by saying that Gift Aid has the potential to transform charitable finance. It is a great shame, to put it mildly, that very few if any organisations are benefiting as they could. I have no doubt that GAIN can turn a potential into a reality. If readers of our newsletter would like to learn more, I hope they will contact me by telephone or e-mail.
Barry Gower heads the GAIN service at H W Fisher & Company, telephone 020 7380 4939 e-mail firstname.lastname@example.org.