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Treasury to examine gift aid 'opt-out' by 2010

Fundraising | Vibeka Mair | 26 Feb 2009

The Treasury has agreed to look at developing an ‘opt-out’ scheme for gift aid before the 2010 Budget following a meeting last week with the voluntary sector’s major umbrella bodies.

The agreement is a coup for the sector groups, who had urged the government to introduce the scheme in a consultation on ways of improving gift aid take-up in 2007. At the time, government suggested this idea was too complex to introduce without more consideration.

However, now the Treasury has agreed to consider an ‘opt-out’ system which would mean instead of donors having to give permission for the tax they paid on donations to go to charity, it would go to charity automatically unless a donor objected.

The Treasury said it hoped to bring in any changes before the 2010 Budget in order to support the sector through the recession.

No quick fix

However, Sarah Campbell, a senior charity tax manager at PKF, has urged charities to steer clear of expecting there will be a “quick fix”.

“The willingness of the Treasury to continue to consider the problems faced by the charity sector is encouraging, particularly in the current economic climate. Nevertheless, it is unlikely that there are any simple solutions and charities should not assume there will be any quick fix.”

At the meeting, the group also discussed matching grant schemes for irrecoverable VAT charges for organisations involved in joint ventures and shared services.

Charities estimate that they lose £500m each year because they provide services that are either exempt from VAT under EU law or are outside of the scope of VAT because they don’t charge for their services. Because they can’t charge VAT to the customer, they can’t recover it on their expenditure – putting charities at a disadvantage to private sector organisations.

Sector to offer test cases

An NCVO spokeswoman said the group – NCVO, Acevo, Charities Aid Foundation, Charity Finance Directors’ Group, and the Institute of Fundraising - still wanted the government to offer grants to cover VAT that couldn’t be rebated.

The group has agreed to put forward a series of test cases to the Treasury in order to extract general principles.

Debbie Jennings, director of VAT Services at PKF, added: “EU law does make provision for reimbursement of expenses without a VAT charge, and although this provision has not been enacted in the UK, EU law will have a direct effect.

“However, this provision does require that the charities are only carrying out non-taxable activities and the exemption doesn’t extend where charities have taxable business activities. This means that some situations would not benefit from this exemption.”

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