The chair of a select committee has criticised the government for being too slow in closing a legal loophole that could lead to membership charities losing millions of pounds.
Yesterday, MPs discussed the impact of upcoming changes to the Digital Markets, Competition and Consumers Act (DMCCA) 2024 on membership charities’ cashflows.
The act introduces a 14-day “cooling-off period”, which will allow people to cancel their membership within the first two weeks, and has drawn concerns from charities such as the National Trust.
Culture, Media and Sport Committee chair Caroline Dinenage said yesterday that the change, which comes into effect next year, could lead “to a potentially huge loss in revenues at a time when charities’ finances are already overstretched”.
“The provisions of the act move us away from a place where we view a charity membership as an expression of support,” Dinenage said.
“If, for the purposes of the DMCCA, refundable memberships are no longer considered to be donations due to the government insisting on applying a 14-day cooling-off period, the result is that gift aid can no longer be claimed.”
Dinenage said the government intends to close this loophole by 2027 at the earliest, but urged it to do so sooner.
‘We expect our charities to do so much’
The National Trust told Dinenage that based on current guidance, every 1% of its membership that takes advantage of the loophole will lose it £3m.
Dinenage said that even if a small number of the National Trust’s members took advantage of the loophole in the law, that would have a “huge and significant impact” on the charity’s finances, “and that means less money spent on its core mission, which is to conserve our heritage”.
“We expect our charities to do so much,” she said. “They provide so much for our nation and they do it really well. But membership charities need a vote of support from the government now.
“They need this albatross removed from around their necks. And in light of the billions of pounds of tax rises that charities have already seen, there’s an incentive for the government to provide legal clarity.”
Membership charities told Dinenage that the best solution to this issue could be to classify charitable memberships as excluded contracts in secondary legislation.
Dinenage said: “Streaming subscription services, for example, have been given waivers from the 14-day cooling-off period.
“Membership charities should at least be able to expect the same support as users of streaming subscription services.”
Minister: ‘We’re carefully considering these issues’
In response, civil society minister Stephanie Peacock said she recognised the concerns raised by Dinenage and that the government continues “to carefully consider these issues, particularly the cooling-off period and the additional administrative costs”.
“I’m confident that we’ll be able to find an acceptable solution, because the Department for Business and Trade (DBT) will shortly publish the government response to the consultation on subscription regulations, and we’re committed to continuing close engagement with charities,” Peacock said.
“On a related note, I hope that the charity sector will be reassured by HMRC’s guidance, which has been changed to set out its interim position, so that charities can continue to claim gift aid on eligible membership subscriptions.
“The government’s intention remains that eligible charities can continue to claim gift aid on the same basis as now.”
CIOF: Law puts sector’s commercial and operational sustainability at risk
Claire Stanley, director of policy and communications at the CIOF, told Civil Society that the support voiced by Dinenage is “a positive step forward towards rectifying the many challenges charities and non-profit associations are facing regarding the DMCCA”.
“Amidst a challenging giving landscape, this new law threatens both commercial and operational sustainability of one of the sector’s most vital income streams,” Stanley said.
Stanley said the CIOF has been working with government departments over the past two years “to find mutually beneficial solutions that preserve the DMCCA’s underlying intention to strengthen consumers’ rights, without jeopardising charitable income”.
These include excluding charitable donations that qualify for gift aid from DMCCA’s scope, introducing a waiver that limits misuse of the cooling-off period and co-creating guidance with the DBT to alleviate administrative burdens.
“We remain committed to working with government departments, charities and non-profits to find a way forward that will ensure donors continue to receive the highest standards of consumer protection, whilst allowing this essential source of income to thrive,” Stanley added.
