The Charity Tax Group (CTG) is advocating that the best way to make progress on gift aid would be to move from the current paper-based system to a standard electronic database provided by HMRC to each charity.

The idea has emerged as CTG’s favoured proposal in light of disagreement among charities about the merits of a composite rate and HMRC’s insistence that any change to gift aid must be cost-neutral.

Speaking at the CFDG members’ meeting last week, CTG director Helen Donoghue (pictured) said HMRC has come to the view that it is encouraging bad habits by keeping charities on a paper-based system, and that the department thinks “there is a lot of mileage” in the proposal.

She said that such a database would be kept simple, possibly downloadable from the HMRC website and ideally free.

In CTG’s recent Gift Aid Simplification Survey, 81 per cent of charities supported the idea.

On the composite rate, Donoghue said there is “an absolute impasse” between a number of fundraising charities which would receive an immediate benefit from such a change, and the “powerful votes” of those charities that would not benefit, mainly in the arts and education sectors.

Sector's £150m is “immaterial”

Donoghue also reported on the status of various other tax issues:

• VAT rise to 20 per cent – “We received a stern warning from HMRC officials not to make a fuss about VAT, ‘because it wouldn’t do anyone any good’.” She added that CTG did make a protest about the fact that the government’s impact assessment did not mention the sector, but was told “we are talking about raising £13bn, your £150m is immaterial”.
• Substantial donors legislation – CTG had been hoping this would appear in the next finance bill, but it is not now likely to appear until next year. Donoghue said this is “very disappointing”, as it “keeps being put back”.
• VAT to be charged on postal services – Donoghue said the small print shows that this will have a limited effect on charities – CTG is hoping to produce a briefing paper on the issue.
• Consultation on VAT on shared services – CTG had already provided a detailed budget submission containing two viable models, and had hoped that one of them would be implemented in the Budget. Donoghue said she was “a bit disappointed as we’ve been through this umpteen times”.
• Irrecoverable VAT – Some hope of progress is being offered by a European Commission study on the taxation of public bodies in member states, with a view to a Green Paper by the end of the year on a wider VAT strategy. As organisations that deliver public services, civil society organisations will be included in this, though Donoghue warned: “This is going to be a very long tunnel for several years to come”.