Barry Gower unpicks the detail of the proposal to allow charities to collect gift aid on donations of £20 or less.
The Budget of 2011 introduced the concept of the Gift Aid Small Donations Scheme (GASDS). In brief, this will allow cash donations of up to £20 each and £5.000 in total, to benefit from a gift aid type of payment (worth 25 per cent of the donation) without the need for a gift aid declaration or any records and evidence. This is known as the ‘core’ amount, though it is possible for this to be increased if the charity carries out its activities in ‘community buildings’.
Now before you go dashing off to identifying some £5,000 pounds of anonymous donations and claiming your £1,250 ‘present’ - it’s not quite as simple as that.
It should be stressed that GASDS is currently under consultation and all points made here are proposals only and are subject to change before the scheme is introduced in the April 2013.
Firstly, although it looks like gift aid, GASDS is not actually part of gift aid (I realise that this is probably a confusing way to start, but it does unfortunately reflect the approach to the scheme). Quoting from HMRC’s consultation document: “The GASDS, unlike gift aid, will not be a tax relief but will instead be funded through public expenditure.”
Although similar, it will have different rules and requirements. Perhaps the first of these is the way in which HMRC will need claimants to prove that they are not acting fraudulently. Unlike gift aid, this will not be as much by evidence, as by history. HMRC is proposing that a charity will need to have a “good compliance record of at least three years of making gift aid claims before becoming eligible for the GASDS”. It is also considering looking at establishing a link or relationship between volume of GASDS and gift aid claimed, to avoid fraud.
The scheme is also aimed totally at pure cash collections. Cheques, postal orders, credit card payments – in fact anything more than putting money in a collection box - will probably not qualify for the scheme. The aim is to allow collection of a gift aid-type payment on impulse donations or where it is difficult to collect donor’s details. This is also the reason for the £20 limit, but it gives rise to uncertainty - does this apply if a donor puts in three £10 notes, or if he empties his bottle of coins into a collection tin?
The time period for claiming is also different. For charities that are companies gift aid can be claimed for four years from the end of the financial year in which the donation was made. GASDS requires the claim to be made “within one year of the end of the tax year in which the small donations are collected”. So there are two issues here – the time allowed is reduced, and the start and end points are different. This will have an implication on software, as well for those charities which are able to claim on multiple lots of £5.000, due to the ‘community building’ rule.
Clearly there were good intentions of the introduction of the GASDS, particularly as Chloe Smith, Economic Secretary to the Treasury, stated: “The government is committed to encouraging charitable giving and building a more socially conscious society.” What is equally important is that this is done in a way that achieves these objectives and does not result in (smaller) charities regarding this as more trouble than it’s worth.
Barry Gower is managing director of Gain (Gift Aid Recovery Consultants)