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budget news gives sector £300m more in gift aid

Fundraising | Ian Allsop | 1 Mar 2008

Charities are set to receive an extra £300m in gift aid over the next three years as a result of today’s Budget.

Chancellor Alistair Darling (pictured) announced that payment of gift aid claims will be made at a transitional rate of 22 per cent for the next three years.

The measure, part of the government’s response to last year’s gift aid consultation, will come as a relief to the sector. Charities had feared that the change in the basic rate of income tax from 22 to 20 per cent, announced in last year’s Budget and effective from 6 April, would cost the sector around £100m a year.

The government also announced a major reform to the gift aid auditing and record-keeping process, a comprehensive programme to encourage the take-up of gift aid by smaller charities, and a redesign of its gift aid guidance.
 
The government said its consultation had generated suggestions of ways to alter the mechanics of the system to make it easier for some donors to give. “These are complex issues that require a better understanding of donor behaviour, and a full assessment of the risks that could arise if alterations were to be made to a currently successful system,” it said. “The government will continue to work with donors and charities to develop understanding of donor behaviour and use that to inform further thinking about gift aid.”

With immediate effect the government will reduce the fear of audit by setting an error level of 4 per cent below which charities with claims of less than £2,500 each year (two-thirds of claimants) will not be penalised for errors in record-keeping.

Additionally, it will allow charities to repair errors at the audit stage before the error rate is extrapolated across the whole gift aid claim. It will also open discussions in the summer on the option of self-certification to reduce audit burdens for large charities.

There is an adjustment to the claims process to allow charities to aggregate donations under £10 up to a total of £500, and by the summer HMRC will develop a framework setting out the option to destroy enduring gift aid declarations after six years provided a database record is retained.

A gift aid web information service at www.direct.gov.uk/giftaid has been launched together with a detailed programme of upgrades to HMRC guidance, both of which will be developed in partnership with the sector. A gift aid toolkit containing all of the tools and guidance needed to run a successful gift aid scheme, available to over 5,000 newly-registering and 20,000 existing registered charities, has also been developed.

For small charities, the government has announced the extension of the tax-effective giving initiative delivered through the Institute of Fundraising, to meet the needs identified by the gift aid consultation.  These include giving charities access to training, resources and advice on operating tax-effective giving schemes.  The use of local umbrella charities to help community and voluntary groups access the benefits of gift aid will be promoted, and a new online gift aid mentoring forum for charities developed.

Charities Aid Foundation was delighted at the anouncement. Chief executive John Low said: “This is fantastic news for charities. It is a huge relief as we feared charities were going to lose in excess of £90m per year when the basic rate of tax comes down next month. This means that every pound given by a UK taxpayer will continue to be worth £1.28 for their charity and will give charities a chance to adjust to the new lower rate.”

Megan Pacey, director of policy and campaigns at the Institute of Fundraising, welcomed the introduction of the transitional rate and said it as an “acknowledgement of the impact that this change was due to have on the sector”.

However, she said it was vital the government now worked with the sector about how to replace the relief when it comes to an end in 2011. “We’ve been given some breathing space to think about this in a strategic and long- term way and we really must make sure that we make the most of that opportunity.”

Harpal Kumar, chief executive of Cancer Research UK, welcomed the crucial decision on gift aid and said the charity was “very pleased to see the government listening to the sector”.

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Directory: Cancer Research UK (CRUK) | Charities Aid Foundation | Institute of Fundraising | Office of the Third Sector
Who's Who: John Low | Harpal Kumar