Rules on gift aid and benefits given to donors are too complex and in need of reform, charity tax and finance professionals have said in their response to a government consultation.
The Charity Tax Group and the Charity Finance Group were separately responding to a review of gift aid donor benefit rules, conducted by HM Treasury.
The call for evidence, which launched in July and closed on Friday, aimed to look at ways the existing gift aid donor benefit rules might be improved.
At present charities are allowed to give a limited amount of benefit to donors and still claim gift aid on their donations. However the rules are considered to be hard to understand, and both CTG and CFG feel that many charities are not offering any benefits because they are afraid to make a mistake.
Both infrastructure bodies warned that the rules were not working as they currently stood, and said that government should press ahead with a review.
CTG response
The CTG has said that the review should have the close involvement of charities and charity advisers, with a “particular focus being given to the ‘in consequence’ rule”.
Under the current rules, where a benefit is received by a donor or a person connected to the donor ‘in consequence’ of making a gift, the donation will not qualify for gift aid unless the value of benefits is within certain limits.
The CTG has said that there is ambiguity around this, saying that it is “not well defined or explained in the guidance and there is widespread misunderstanding of the correct interpretation”.
It is also suggesting the review looks at way to improve accessibility to the guidance on Gov.co.uk.
John Hemming, chair of the CTG, said: “CTG welcomes the government’s recognition of ‘the important role that the charities sector plays in our society’ and the financial support that it gives in the form of tax reliefs.
“Like the government, CTG is keen to ensure that the gift aid donor benefit rules are easy to administer and are fully utilised and we have made a series of recommendations to help realise this goal”.
The CTG is also recommending that the government continues its engagement with the sector, and convenes a meeting of charity tax forum gift aid donor benefits sub-group before any proposals are put out a formal consultation
It recommends that donor benefit thresholds be “easy to follow, fit for purpose and tackle the ‘cliff edge’ problem”.
The cliff edge problem comes about because if benefits exceed the threshold, the entire donation becomes ineligible for gift aid.
The CTG also suggested widening the number of benefits which are not included in the existing rules. And it said the rules should be based on how much benefits cost charities, not how much they would be worth on the open market.
CFG response
It has said that there is "significant desire for reform", and that the current rules create "administrative complexity for charities and HMRC, with uncertainty around valuations and the cost of benefits".
The CFG has said that it is particularly concerned about small charities. It says "highlights the fact that many small charities do not engage with the system because of its perceived complications".
It said that the "rules require wholesale reform rather than piecemeal changes, and a package needs to be developed in consultation with the sector". Adding that "it is unclear whether this call for evidence will provide the evidence base to develop changes".
The CFG concluded: "It is important that HM Treasury provides the resources to HM Treasury charity tax policy team and HMRC to properly investigate the use of gift aid donor benefits and develop a robust evidence base for future reform."
