It is good to see Cancer Research UK taking the lead on Gift Aid reform by supporting a 30p composite rate.
It’s an idea that means charities would receive 30p in Gift Aid on every £1 given by a taxpayer, and higher-rate taxpayers would lose the right to claim any personal tax relief on donations.
Progress was needed. Before there can be a sensible debate with the Treasury over reform, there needs to be something to discuss, and the plethora of different options that existed at the start of the year simply weren’t tenable.
However introducing a 30p composite rate would still raise problems. It’s difficult, for instance, to justify labelling a composite rate as tax relief rather than public expenditure.
That’s because the system would mean that if a donor gave £1 to charity, that charity would get an additional 30p even if the donor originally only paid 25p tax to get that £1. Can a tax relief give back more money than the donor originally earned and paid in tax? Or would it have to be called public expenditure?
At present, charities receive 25p as a tax relief on every £1 donation, and then another 3p in public expenditure – transitional relief. That public expenditure can easily be taken away, and in fact it will be in just over a year’s time.
Tax relief, by contrast, is much harder to withdraw, which means that any decision to reclassify Gift Aid as public expenditure would leave the sector vulnerable – and has been ruled out by third sector minister Angela Smith.
It may be possible to label a composite rate as tax relief – an argument between the Treasury and the ONS is going on over this at the moment – but it would not be an easy battle.
It’s also not clear how a composite rate would sit alongside payroll giving. Would payroll giving continue to roll on independently, offering a different system of tax relief to Gift Aid? Or would a giver receive an extra reduction in tax, above and beyond what he paid? Or would it be scrapped altogether? None of these options sound good.
And there is another issue: Cancer Research UK’s plan calls for one major change to the original scheme. Donations over £10,000, it says, should still be treated under the existing Gift Aid regime. This obviously changes the game.
The attraction of the 30p rate is that it’s revenue-neutral for the Treasury. But would it still be revenue-neutral with this addendum?
At present, the Treasury is effectively paying 66p out to donors and charities for every £1 given by a higher-rate taxpayer. If it still had to do that on major gifts, the 30p rate would look a lot less attractive.
If that £10,000 limit wasn’t introduced, though, would the 30p rate still be attractive to charities? Or would it send major donors flocking out the door in droves?
Only one in three givers claim personal relief, but relief is claimed on 80 per cent of the money given.
So relief is obviously valued and well used by major donors. In fact, higher-rate donors are much better at reclaiming tax than charities, who manage to reclaim only 30 per cent of the Gift Aid they are entitled to.
Whatever the eventual decision on a composite rate, however, there are some things which could be done easily. Those things involve streamlining the administration of Gift Aid, rather than a change in the method of distributing it.
Most of them could be done simply, easily, without cost to the Treasury, and without donors even noticing. They’ve already been highlighted in a very good Charity Tax Group report, and in this article, so I won’t list them again here.