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£750m lost by gift aid system 'stuck in the past'

Fundraising | Celina Ribeiro | 6 Sep 2010

More than £750m is lost every year in gift aid because of an outdated system that disincentivises charities and the Treasury to make the most out of it, according to a report by think-tank ResPublica.

The Digital Giving report, commissioned by Charities Aid Foundation, outlines a raft of measures the government are urged to introduce in order to boost gift aid.

Twenty years on from the introduction of gift aid, the report says that charities must be able to lodge their claims online and that the administrative burden of keeping a paper trail discourages charities from using the tax break, to the extent that £750m is unclaimed annually.

Allowing charities to lodge claims online will enable gift aid to be claimed on text donations which could be worth more than £15m by 2014, the report argues.

The report argues that this could significantly reduce the £5 it costs to process each transaction, a cost which, it suggests, acts as a disincentive for the HMRC to promote effective take up of the mechanism.

The report, which is authored by the think-tank led by Philip Blond, the influential Conservative thinker behind the ‘Big Society’ idea, also calls on minister for civil society Nick Hurd to set up a Digital Giving Steering Group to look at how charities can gain more from online fundraising as they face cutbacks and continued economic uncertainty.

Controversially, ResPublica also calls for the end of the transitional relief rate of gift aid, which many sector leaders have been calling to have extended past its April 2011 end date, pointing out that its end will save the government £300m over the next three-year cycle.

Blond said: “If gift aid is to work then it must be simple to administer and cost-effective. At the moment it is not and consequently charities are missing out on hundreds of millions of pounds. It is also a scandal that every gift aid claim costs HMRC £5 to process, regardless of its size.

“We advocate the use of new technology to reach out to a whole new generation of donors who do not respond to traditional fundraising appeals. They do not respond to people but standing around on street corners rattling a tin, but we know they do respond to a call to action from the social media websites.”

John Low, chief executive of CAF, endorsed the report, saying that government must seize the opportunity to ensure gift aid “comes of age”.

Sector 'needs to catch up'

But the Institute of Fundraising was less impressed, expressing concern that the latest discussions mean that the consultation around gift aid is departing from its original brief.

Lee Grant, tax-effective giving project manager at the Institute, said: "It is quite alarming that in 2010, we are discussing new technologies in gift aid in the same breath as ‘the internet’ and ‘SMS donations’; this is hardly revolutionary stuff.  However, the fact remains that the sector needs to catch up, and what we have come to expect as ‘the norm’ in the commercial sector is not necessarily being replicated in ours. 

“Even more alarming is that whilst criticisms have been made on the lack of progress in gift aid reform over the past three years, the recommended ‘technological advances’ are expected to be introduced over the next decade, and yet another steering group will blaze the trail."

For a look at how the online system would work, read Gareth Jones' summary

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Directory: Charities Aid Foundation
Who's Who: John Low | Nick Hurd