HM Revenue & Customs could scrap rules limiting the benefits a charity can give each individual donor.
Current HMRC rules say donors can only receive benefits worth 5 per cent of the value of their donation, or £2,500, whichever is lower. Benefits must be considered at fair market value, rather than the cost to the charity. If the charity gives out more than that to a donor, it cannot claim gift aid on their donation.
Benefits include anything given to donors, from calendars, mugs or T-shirts sent to donors, to tickets or advance screenings for arts organisations.
At present, charities complain the guidance around donor benefits is complex and inconsistent, and that it is hard to track which benefits go to which donors, and what the value of those benefits is on the open market.
Speaking at the recent Charity Tax Group annual conference, David McDowell, an official at HMRC, said his organisation is exploring a complete revision of the rules, although it is still at an early stage in the process.
The new rules would potentially allow a charity to give benefits of any value to individual donors, so long as the total level of benefits remained under a certain threshold, likely to be between 1 and 5 per cent of all gift aid claimed. Benefits would be valued at cost rather than market value. And if the charity exceeded the limit, it would see a reduction in its gift aid bill, rather than the removal of the right to claim altogether.
“These rules have been a problem for everyone for a long time,” McDowell said. “You find them difficult to follow and we find them difficult to explain.
“We discovered the guidance for the current system is really difficult to simplify, so we’ve begun to think about the underlying legislation.”
He said that HMRC was interested in receiving further feedback on the ideas before it took forward any firm proposals.
He said there are potentially several problems around the new system, he said, including difficulty in ensuring that all the benefits were not collected in the hands of a few donors, and calculating how much tax could be reclaimed by higher rate taxpayers if the charity’s gift aid payments were reduced.
