Lord Hodgson’s proposal that it should be easier for charities to pay trustees has drawn the most ire from the sector, but his proposal that Gift Aid be withdrawn from charities that file their accounts late is perhaps the one that seems to make the least practical sense.
First of all, Gift Aid is of vastly different importance for different charities, so the penalty for late filing is not a uniform one. Many do not claim Gift Aid at all. What happens to them?
What if a charity claims £50 in Gift Aid each year? Effectively you’ve told that charity it’s free not to file its accounts, in exchange for not being allowed to claim Gift Aid on a tiny little donation.
Secondly, Gift Aid is administered by HM Revenue & Customs. The commission and HMRC have a pretty iffy record of communication. Under this system, presumably the commission is expected to let HMRC know every time they want someone struck off the Gift Aid list, and HMRC is expected to feed that into its computer.
This cannot go anywhere but wrong. HMRC produces all sorts of errors when it only needs to keep its own records up to date. The problem will increase exponentially with two sets of people to talk to – especially since HMRC pays Gift Aid on the nod, without carrying out detailed checks in advance: the wrong charities will be struck off; people who should be struck off will not be; small charities will discover six months later that they weren’t entitled to Gift Aid they thought they were entitled to and the trustees will be liable for it out of their own pocket.
Thirdly, Gift Aid, we keep getting told, is a tax relief for the donor. Lots of people are entitled to claim higher rate tax relief based on the fact that the charity has collected Gift Aid. You are effectively penalising some donors for charities’ mistakes, without letting donors know about it in advance.
I dare say the problems I’ve raised are just the tip of the iceberg. I can’t imagine how much more complex it would prove in practice.
Fortunately, the whole idea looks likely to be a non-starter.