Sector bodies attempt to increase pressure for Gift Aid reform

Frustration is mounting as the possibility of introducing much-discussed reforms to Gift Aid before the next election dwindles with time.

This week the organisation for chief executives ACEVO and the Institute of Fundraising sent a joint letter to Ian Pearson, Economic Secretary to the Treasury, asking for a clear timetable for reforming Gift Aid on donations from higher-rate taxpayers before the next Budget. The government has been working with the sector for two years to revise the current system, but no reforms have yet been decided.

It had been hoped that Chancellor Alistair Darling would address the issue in the pre-Budget report published on 9th December, but he gave no firm commitment, simply promising to "continue to explore how best to support the third sector through the Gift Aid system".

In mid-December the government published the results of independent research into the reform of Gift Aid for higher-rate taxpayers, which broadly concluded that redirecting tax relief from higher-rate donors to charities was unlikely to affect levels of giving. However, no decisions on the way forward were taken, with the Treasury pledging to hold more meetings with the sector to discuss the issue.

The joint letter from ACEVO and the IoF welcomes the research as “an important and valuable evidence base from which to progress our discussions on Gift Aid”. However,  It also speaks of  'frustration' at the lack of progress,  “Our engagement on this issue with Treasury has been ongoing for approximately two years, and at times has been a frustrating progress.”

The letter calls for  forthcoming discussions to concentrate on the three options examined by the research, rather than opening up other possibilities.

The current system allows charities to reclaim the full value of tax paid at the basic rate (currently 20% + a further 2% of transitional relief) and higher-rate taxpayers can also reclaim additional tax relief on their donations up to the full value of the tax they have paid. The three scenarios examined by the research are:

• To transfer the right of higher-rate taxpayers to claim additional higher-rate relief to charities.
• Introducing a composite rate of tax relief of 30p in the £, claimable by charities, with higher-rate donors unable to claim additionally.
• Introducing a composite rate of tax relief of 37p in the £, claimable by charities, with higher-rate donors unable to claim additionally.

The research based on an online survey of nearly 4,000 respondents who had previously used Gift Aid, either CAF account holders or active donors through Just Giving, as well as in-depth interviews with 12 major donors who had made gifts of over £100,000 in the last year.

It found that targeting the tax relief at the charity and not the donor would increase charities’ Gift Aid income by 4.2%, and that most higher-rate taxpayers would prefer this option. A composite rate of 30p would increase charities’ Gift Aid income by 2.4%, while the 37p rate would add an extra 10.3%.

Only 35% of higher earners currently claim the relief, although they are responsible for nearly 80% of the value of donations from this group.  Most donors (79% of ‘non-reclaimers’ and 45% of ‘reclaimers’) said they would not adjust their cash donation if there were a change in the Gift Aid rules.

The research concluded that targeting tax relief at charities would bring more money into the sector and is more efficient than targeting the relief at donors, with several important caveats. These included that there would be winners and losers within the sector, that the practical implementation issues had not been taken into account, and that it was unknown how charities would react to the changes.

Louise Richards, director of policy and campaigns at the IoF, said, “When this research was presented,  the sector was told that the government was going to convene a forum with all the sector bodies involved to discuss further.  However, we have not to date received any notification of such a forum, and are concerned that time is running out and that no action will be taken. With the impending election looming, we are concerned that the whole thing will be kicked into touch."

John Low, chief executive of the Charities Aid Foundation (CAF), sounds a note of caution. “We want reform of Gift Aid to be a priority for government because with the right changes it has the potential to boost charity income by hundreds of millions of pounds. It seems very unlikely that thought-through reform can be introduced ahead of the General Election.  It is very frustrating that it has taken two years to get this point but we are supportive of the government approach, developing evidence and research-based policies and now consulting the sector rather than rushing through changes that could prove disastrous. Gift Aid already provides £1bn of tax recovery to the sector and ill-conceived policies could damage this."

He said CAF would continue talks with the government.