Digital giving and gift aid: Our response

September 27, 2013 at 14:27

Gift Aid enthusiasts have had a lot to chew over the past few months, with proposals on the table from HMRC and the Treasury to make Gift Aid work better for online and text donations. As people increasingly use online and mobile platforms for donating, the current paper based system for Gift Aid is showing its age. Therefore we welcomed the Government’s consultation on Gift Aid and Digital Giving, which seeks to address this challenge and some of the wider cracks in the Gift Aid system.

In our response, CFG and NCVO urged the Government to seize this opportunity to make a lasting and sustainable difference to ensure that the Gift Aid system is both simplified and fit for the future. There is clearly considerable potential to expand use of Gift Aid; it’s currently only claimed on a third of individual donations. While we welcomed the Government’s stated ambition to have ‘Gift Aid claimed on as many donations as possible’ we argued that, overall, unless a more radical approach to administering the system is adopted, and Gift Aid actively promoted to donors, uptake will remain relatively static.

A number of principles underpin our approach to the proposals including:

a) Gift Aid should retain its status as a tax relief

b) Ultimate liability sits with the donor.

c) Any changes to Gift Aid should focus on simplification across the board, and enhance the understanding and use of the relief.

d) The relationship between the charity and the donor is critical.

e) Any additional costs to the charity must be reasonable

f) Non-charity intermediaries must be appropriately regulated.

g) Alternative Gift Aid-like options are needed where they are more practical e.g. the Small Donations Scheme and possibly digital micro donations in the future

The Governments proposals centred on three areas:

1) a) Changes to the Gift Aid declaration

The current declaration is long, complicated, difficult for donors to digest and cumbersome for fundraisers to use. However, we think it’s important in terms of keeping the link between the donor and the relief. CFG are not convinced that the benefits of the longer declaration (reported lower error rates) materially outweigh the benefits to the wider sector from having a shorter declaration. Simplifying the declaration must be the Government’s priority, with a focus on:

· making it shorter and more accessible;

· removing non-essential references e.g. to VAT and Council tax, CASCs, tax years;

· making the language more positive and inclusive.

We didn’t support proposals to shift liability to the charity; while many large charities choose to take this on, we think it may place an undue burden on smaller charities that are less prepared to deal with an unexpected tax charge and penalties. Formally shifting the liability would change the risk profile of Gift Aid, and may require charities to hold additional reserves. Additionally, complexities in addressing the liability where a donor has given to multiple charities would make it unnecessarily complex to administer.

2) b) A greater role for non-charity intermediaries

We recognise that the range of non-charity intermediaries is growing, and that they play an increasingly important role in facilitating online fundraising and the making of Gift Aid claims. While we welcome the role many play in reducing administration of fundraising, increasing innovation and developing more seamless giving platforms, we also argued that there is a need to be mindful of the potential impact on trust and confidence. In an increasingly complex marketplace, effective regulation of intermediaries and donor understanding may be compromised.

The consultation included proposals to allow non-charity intermediaries to use a single declaration for each donor to cover all their donations. We think this would be particularly valuable if core payment operators (such as banks and mobile providers) engage, particularly in the instance of text donations. However thereafter it’s of limited use. We also recognised some of the complications with this proposal in terms of where the liability in cases of error would sit.

3) c) A universal Gift Aid database

The inclusion of the universal database proposal for discussion was a positive step. In our view, this, coupled with HMRC running validity checks for claims (building on Charities Online developments), could revolutionise Gift Aid. Although HMRC stated that they would not be in a position to fund or support it, we believe the only way this system would work is if it was be developed within a HMRC framework, whereby HMRC or an organisation commissioned by them, would hold the donor’s consent and manage its administration. At the moment proposals centre around an independently managed database approved by HMRC which we feel may lead to issues in terms of commercial benefits and competition between providers, and would limit the ability to further develop the database in line with changes to the tax system.

Next steps

It’s unlikely there’ll be any quick wins on this – the database idea has been knocking around for years and any changes to the wording of the declaration would not come into practice until 2015 or 2016. However, we don’t want to miss this opportunity to explore some of the more radical options, and hope that HMC and HMT will share this ambition and engage with us on it over coming months.

A copy of the CFG and NCVO response to the consultation can be found here.