Gift Aid Reform
Posted: Wednesday 5 May 2010
Gift Aid is an income tax relief on money donated to UK charities. Through the Gift Aid scheme, HMRC will treat donations as if the donor had already deducted basic rate tax. The charity is then able to reclaim this tax to increase the value of the donation.
Gift Aid is widely acknowledged to be the most valuable of the ‘tax-effective giving mechanisms’ for individuals, as well as being an essential source of income for charities, with HMRC estimating that £891m is claimed in Gift Aid annually by UK charities at present.
Charity sector representatives have campaigned for reform of the Gift Aid system over the last two years.
In February 2010, HM Treasury set up a Gift Aid forum to consider improvements to Gift Aid and have set out a timetable to deliver recommendations to ministers by September 2010. However, the Treasury has warned that any reforms will have to be ‘cost neutral’.
A key proposal for reform is in relation to the ‘opt-in’ procedure. Currently charitable donors who are eligible to add Gift Aid to their donations, and who wish to do so, have to indicate this (opting-in). The proposals being put forward would mean that donors are presumed to be eligible and presumed to be in favour of adding on Gift Aid, and that if this is not the case they have the opportunity to opt-out. Two of the largest UK fundraising organisations have estimated that an opt-out system would increase their Gift Aid claims by £3-£5million each.
It is clear, then, that any measure to increase the availability of Gift Aid to charitable organisations could have a very beneficial impact on their income, and that campaigns to effect such a change will continue.
The Institute of Fundraising (IoF) has welcomed the announcement of a timetable of Gift Aid reform, but is equally concerned at the lack of progress.
In the meantime, the government could give a huge boost to the sector by extending transitional relief on Gift Aid. Transitional relief was introduced in 2008 to soften the impact of a reduction in Gift Aid in line with the lowering of the basic rate of income tax from 22% to 20%, and covers donations up to 6th April 2011. It is thought that extending the relief for an extra year would provide an additional £90m for the sector.
