What is the charity sector trying to get out of Gift Aid reform?
Many systems have been proposed, but none have gained much traction with either the Government or the sector. Should we have an amended opt-in system or an opt-out system? What about an accounts-based system? Or a composite-rate system? Or a system whereby higher-rate relief is transferred from the higher-rate taxpayer to the charity, with a portion of tax retained by the Government?
I suspect progress is slow because charities are seeking two different benefits. One is a reduction in the administration costs of each donation, and that seems achievable. The other is a system that would make Gift Aid payments easier for charities to claim, which would mean the Government would have to pay out more cash on more donations. That seems unlikely.
The Treasury says it is keen on a ‘revenue-neutral’ solution to the problem, according to the academics who drew up its most recent report. It’s unlikely that the agenda would include anything that cost the Government cash – certainly not in the middle of swingeing public spending cuts.
Some of the wider-ranging proposals for reform, such as a recent Treasury model for scrapping the current higher-rate relief and replacing it with a new benefit, are beginning to look like a dice roll.
This suggestion involves getting rid of the 25p benefit to taxpayers and replacing it with a 25p benefit to charities. The move looks neutral, but it could reduce the total tax rebate on the donation, which would hurt donors more than it helps charities.
Would the reduction in the total value of the donation be compensated for by the fact that more cash ends up in the pockets of charities? Who knows? The only way to find out who would win would be to implement the new system and see.
And there is an added corollary: even if reform does work in favour of charities, the sector faces a large and expensive headache in the form of endless legal quibbles, new auditing procedures, reprogramming every fundraising database, and extensive in-house retraining.
All this suggests that charities should concentrate on cutting down administrative costs. One way to do this would be for the Treasury to implement an accounts-based system that would measure how much money charities receive, then to pay out a percentage.
But the Government hasn’t looked keen on this – possibly because it wouldn’t really be tax relief at all, but rather a donation from the public purse. It would be hard to measure reliably how much money charities actually receive in donations, which could open the door to creative accounting or even outright fraud.
But I do think this idea could work if it was confined to smaller charities which aren’t claiming large sums in Gift Aid and which would benefit most from reduced administration.
They could be allowed to claim a flat rate percentage of their donations as Gift Aid. A similar system has already worked with other tax reliefs; VAT rebates for small businesses are handled in a similar way.
Such a system would be easier to negotiate if the flat rate was set at a level no higher than the current average reclamation rate – just over 8p in every pound donated. It would save a lot of time and effort.
Perhaps larger charities should concentrate on streamlining the current system, rather than venturing into an uncertain world of wholesale reform.