Budget offers 22% transitional rate for Gift Aid over three years

Ian Allsop's article in Professional Fundraising on the Budget - Budget news gives sector £300m more in gift aid - was of course technically accurate, but like all the other media coverage, leads charities to believe they can continue to claim at 22%.

I have had a series of enquiries from my clients this morning who are confused as to how they should operate Gift Aid from April.

Gift Aid is a 'relief' not a 'grant', so the rate that must be applied in the claim is the basic rate of tax in force at the time of the donation.

Your readers should note that they should claim Gift Aid at 20% from April 6th 2008 and that the HMRC will calculate and repay the extra 3.2p per pound claimed.

One other issue is: what do you do with the 3.2p per pound claimed when it turns up? If your system currently allocates the main gift aid to each donor/source/fund, it should do the same with the relief. Yet this would involve a lot of extra processing, not to mention a significant systems change.

Maybe it is simpler just to allocate the relief to a bucket called 'Transitional Relief'.

Charles Bagnall
Principal Consultant
IRIS Not for Profit Solutions

Kevin Kibble at Whitewater's 'Our Lasting Tribute' spotted that government wasn't entirely joined up over the new Gift Aid announcements.

In So how was it for you Darling? he wrote of the new online help service at www.direct.gov.uk/giftaid: "on checking I find that the information still points to the 'new' rate of 20% from 6 April 2008. Mr Darling had obviously not even told other departments about his surprise for us".

He concludes: "so that's it then, we get three more years to find out how to raise an extra £100m a year – shouldn't be too difficult!"

Megan Pacey, Director of Policy and Campaigns at the Institute of Fundraising, will meet with HMRC this afternoon to discuss the detail of yesterday's announcements.

Meanwhile, Lindsay Boswell, Chief Executive of the Institute said: "Supporting charities and voluntary and community sector organisations to maximise their fundraised income is at the heart of the Institute's work and we are very pleased that these important support resources will be able to continue through Govenment funding.

"We are delighted that many of the issues raised by the sector in the course of the HM Treasury led review of Gift Aid have been recognised and action is now being taken. Ensuring that Gift Aid and other forms of tax-effective giving reach their full potential requires a partnership between the sector and Government.

"Central to this is identifying and removing the key barriers to growth and the Institute would urge Government to prioritise and move quickly with many of the proposals that have been outlined today.

"It is also vital that the sector and Government work closely together to ensure that there are ways in which organsiations can generate income to replace the transitional relief when it comes to an end in 2011."

John Low CEO of the Charities Aid Foundation commented: "This is fantastic news for charities. It is a huge relief as we feared charities were going to lose in excess of £90 million per year when the basic rate of tax comes down next month. This will give charities a chance to adjust to the new lower rate."

The Institute of Fundraising Scotland, while welcoming the Gift Aid provisions, said that it hoped to secure similar support from the Government in Scotland to ensure the tax-effective giving workshops in England, supported by the Office of the Third Sector, could be delivered across Scotland.

IoF Scotland Manager Gregor McNie said: "The continuation of the hugely successful tax effective giving training programme in England is great news for charities and beneficiaries south of the border but of no help to charities in Scotland.

"I've today contacted the Scottish Government to look at urgently bringing this to the sector up here. In recent years we have seen Scottish organisations streaming across the border to training sessions in Berwick-upon-Tweed as they are not delivered up here. We fully intend to strongly express our view to the Scottish Government that supporting tax effective training will help Scottish charities maximise their income from a stream with plenty of reserves, helping relieve funding pressures across the sector."

The Charity Finance Directors' Group (CFDG) and the Charity Tax Group (CTG) said that they were pleased to have seen their calls for transitional relief for Gift Aid answered.

Keith Hickey, CEO of CFDG said: "We are really pleased that government has listened to our concerns and responded in this way. 88% of respondents to a CFDG survey last year on Gift Aid supported the move for transitional relief."

Helen Donoghue, Director of CTG said: "This transitional relief is vital for many charities that have complex forward expenditure plans based on their Gift Aid income."

CFDG also welcomed the move to simplify the audit process whereby charities can now go back and repair errors at audit before HMRC extrapolates the error rate across the Gift Aid claim.

However, Keith Hickey pointed out that the new de minimis error level of 4%, introduced to reduce the fear of audit, is not all it seems. He said: "It is good news that with an error level of under 4% there will be no recovery in prior years; however, it is slightly disappointing that unless amount involved is under £100 there will be a recovery in the year of the audit."

NCVO are positive too about the announcements.

Louisa Darian, Policy Officer at the National Council for Voluntary Organisations (NCVO), said: "Today's Budget announced a number of welcome reforms to Gift Aid which will make it easier for many charities to maximise the income they receive from donations. In particular, we welcome measures to ease the existing onerous auditing process which can prevent charities from using Gift Aid altogether.

"As part of a coalition of charities, which includes Charity Tax Group, acevo, CFDG, National Church Institutions and the Institute of Fundraising, we have been calling on the Government to consider moving to an accounts-based Gift Aid system.

"This would enable the Government and the sector to determine a fixed rate of Gift Aid a charity can claim, based on the charity's level of voluntary income, taking into account the percentage of donors who are taxpayers. NCVO recognised from the outset that this would not be taken up overnight and are pleased that the Government has committed to continuing a dialogue with charities to inform further thinking on Gift Aid."

Harpal Kumar, chief executive of Cancer Research UK, has welcomed the transitional Gift Aid announcement, saying:

"A crucial decision has been made in this Budget on Gift Aid which will prevent the charity sector from losing hundreds of millions of pounds as a result of the drop in the basic rate of income tax in the last Budget. We are very pleased to see the Government listening to the sector on this crucial source of income as we've been working hard to convince the government to support charities.

"We look forward to working with the Government on the longer term package of measures to reform the Gift Aid system announced today."