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Changes to the tax rates announced in Gordon Brown's last Budget as Chancellor will have a negative impact on the amount of money received by charities in Gift Aid when they come into effect in April 2008. According to analysis by the Charities Aid Foundation, this could result in a loss of £71m to the sector.
The 2p cut in the basic rate of tax means that charities will only be able to reclaim 25p per pound donated, rather than the current 28p. The difference of 3p is because of the way Gift Aid is calculated. NSPCC has estimated that it could lose £1-2m, while Macmillan may lose half a million pounds.
The announcement has provoked much debate in the sector about how best to respond to the changes. It has broadly welcomed the accompanying commitment to a consultation in June on the administration of Gift Aid - an estimated £600 million goes unclaimed each year.
At a recent policy forum in London, fundraisers said the biggest problem with Gift Aid was the bureaucratic burden of filling in forms. Not everyone in the sector agrees - some say it is as straightforward as tax legislation can be and works perfectly well.
In the meantime, some charity chief executives are calling for a transitional period to overcome the loss in income. Other suggestions include giving donors a tax-free allowance to donate to charities and better ways to collect Gift Aid on donations in-kind. The Charity Finance Directors' Group (CFDG) wants those who pay higher-rate tax to donate all their tax relief to charity.
Other solutions are rather less plausible. Some are calling for Gift Aid to be fixed at 28p in the pound, while others want the Government to allow fundraisers access to HMRC's taxpayer register so that they could identify and exclude non-taxpayers from Gift Aid claims.
Meanwhile, the Association of Chief Executives of Voluntary Organisations (ACEVO) says charities should be able to assume people are taxpayers unless they indicate otherwise to reduce administrative burden.
"We welcome the announcement of a consultation on the administration of Gift Aid," says David Emerson, Chief Executive of the Association of Charitable Foundations (ACF). "However, we think it less certain whether the principle of Gift Aid will be significantly altered. Gordon Brown has previously demonstrated his support for increasing charitable giving and, while this budget announcement would clearly have a significant negative impact on charities in its present form, it may offer us a good opportunity to open a dialogue with Government about how the proposals might be amended, and particularly around the possibilities of implementing additional measures to support philanthropy that are practical as well as acceptable to the Government."
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