Gift Aid and Digital Giving - Charity Finance Group

HM Treasury – Gift Aid and Digital Giving September 2013 Contact: Charity Finance Group Jane Tully, head of policy and public affairs Email: [email protected] Tel: 020 7250 8400

National Council for Voluntary Organisations Charlotte Ravenscroft, head of policy and research Email: [email protected] Tel: 020 7520 2475

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About CFG and NCVO Charity Finance Group (CFG) is the charity that seeks to raise the standards of financial management in the voluntary sector by championing best practice, campaigning for a better operating environment for charities, providing high quality training and events and challenging regulation which hampers effective use of charitable funds. CFG has more than 2200 members, all senior finance professionals working in the sector and collectively our members are responsible for the management of over £19bn in charitable funds. The National Council for Voluntary Organisations (NCVO) is the largest membership organisation for the voluntary sector in England. With over 10,000 members, NCVO represents all types of organisations, from large ‘household name’ charities to small voluntary and community groups involved at the local level. Alongside our sister councils in Wales, Scotland and Northern Ireland, we make sure the voluntary sector can do what it does best. www.ncvo-vol.org.uk CFG and NCVO have both engaged with Government in on a range of tax issues, sitting on the joint Working Groups for the Small Donations Scheme, the Social Investment Tax Relief, Gift Aid and Charities Online. In developing our response we have drawn on NCVOs research on giving, CFGs member surveys, meetings with our members and conversations with various intermediaries. We have also taken part in HMRC/HMTs consultation meetings over summer 2013.

Executive summary 1. The Gift Aid scheme 1.1 While there has been gradual reform over the years with rapidly advancing IT capabilities and the means through which donors give changing, we are of the view that the time has now come to make Gift Aid fit for the future. 1.2 We are pleased that the Government has stated so clearly that they want ‘Gift Aid to be claimed on as many donations as possible’. Government should also promote its positive vision for the scheme; be bold in their efforts to facilitate it; and be ambitious in defining their measures of success. 1.3 While it is unlikely that Gift Aid will ever be claimed on all individual donations, there is still considerable distance to travel to achieve the stated ambition. We are of the view that unless Government adopts a more radical approach to administering the system, and actively supports the promotion of Gift Aid, uptake will remain relatively static. While short term measures such as improvements to the declaration and facilitating more intermediaries are worth exploring, we would urge the Government to be openminded to longer term more radical changes, to significantly simplify administration so that charities find the scheme easier to run, to engage core payment operators (such as banks and mobile providers), and consider a single database linked to HMRC.

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2. Policy making on Gift Aid for digital giving. There are a number of principles that underpin our approach to Gift Aid for digital giving: a) Simplification: Evolutions of Gift Aid to date, while often welcome and beneficial, have resulted in a system that is complex, unwieldy with an onerous administrative burden on charities. Any changes to Gift Aid should focus on simplification across the board, and enhance the understanding and use of the relief. b) Charity-donor relationship: The relationship between the charity and the donor is critical to the success of charity fundraising, and will continue to be as technology evolves. c) Link with taxation: We are of the view that Gift Aid must retain its status as a tax relief, and liability in instances where insufficient tax has been paid should ultimately sit with the donor. d) Creative alternatives: We support innovative and alternative options where they are more practical e.g. the Small Donations Scheme as a means of extending the benefits of Gift Aid to small donations. With the rapid growth of micro donations through digital means, similar approaches may be necessary in the future for digital giving. e) Reasonable costs: Any additional costs to charities facilitated through these proposals must be kept reasonable. 3. The Gift Aid declaration 3.1 Simplification: We welcome the overall objective of simplifying the Gift Aid declaration requirements; the current declaration is long, complicated, difficult for donors to digest and cumbersome for fundraisers to use. We are not convinced that the benefits of the longer declaration (reported lower error rates) materially outweigh the benefits to the wider sector from having a shorter declaration. In our view, simplifying the declaration requirements must be the priority, with a focus on:  making it shorter and more accessible;  removing non-essential references e.g. to VAT and Council tax, CASCS, tax years;  making the language more positive and inclusive. Changes to the declaration should be made in full consultation with the sector, in particular fundraisers, subject to customer-testing by donors and with a view to being fit-for-purpose for all channels of giving. 3.2 Liability: We do not support proposals to shift liability to the charity; while many large charities choose to take this on, it may place an undue burden on smaller charities that are less prepared to deal with an unexpected tax charge and penalties. Formally shifting the liability would shift the risk profile of Gift Aid, and may require charities to hold additional reserves. Additionally, complexities in addressing the liability where a donor has given to multiple charities would make it unnecessarily complex to administer. 3.3 Two tier system: We do not support the proposal to develop a two tier system. Such as system would increase the complexity that charities currently face, and may cause administrative complications for fundraising systems. 3

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A greater role for intermediaries

4.1 Role of intermediaries: We recognise that the range of intermediaries is growing, and that they play an increasingly important role in facilitating online fundraising and the making of Gift Aid claims. While we welcome the valuable role many play in reducing administration, increasing innovation, developing more seamless giving platforms and the economies of scale that can be achieved for charities, we also think there is a need to be mindful of the potential impact on trust and confidence. In an increasingly complex marketplace, effective regulation of intermediaries must be maintained. 4.2 Single declaration for non-charitable intermediaries: We welcome the Government’s proposals to introduce a single Gift Aid declaration that can be used by non-charity intermediaries, and are of the view that it has some potential to increase uptake of Gift Aid. We see the real value in this measure being achieved if it facilitates bodies already engaged in the payments process (such as banks, payment facilitators and mobile companies) to take on the role of intermediary. However we question whether there will be the commercial imperative for them to do so. 4.3 Beyond this, potential is more limited; although we think it may facilitate new innovations and marginally simplify processes for existing intermediaries. Achieving a radical change in uptake and simplification will require a more holistic overhaul of the system (see below). 4.4 Simplification: We would urge Government to keep any new proposals simple, and therefore to focus on developing one mechanism for allowing intermediaries to engage in this process that builds on the benefits of proposals 2 and 3, and facilitates greater take up of Gift Aid. In our view, principles that must underpin the system are:  reasonable cost: while charities may be willing to forego some part of their donations or Gift Aid in place of easier administration, there is a limit to this. A balance will need to be struck between reasonable costs to the charity and the commercial interests of the intermediary.  charity-donor relationship: it is important that any new arrangements ensure the charity-donor relationship can remain intact. This may occur either contractually at a reasonable cost to the charity or as part of the core service. 4.5 Liability: We recognise the complexity of liability arrangements under the proposals for non-charity intermediaries. In principle, we are of the view that the intermediary should be held liable if the fault is with their processes or the way they have used the declaration. We would expect that in practice any claw back for invalid declarations (due to the donor not having paid enough tax) would be written into contracts with the charity. If this is to be the case, it would then need to be at the charity’s discretion whether they go back to the donor, or pay the liability themselves. We recognise that there is a difficult issue here with regard to data transfers, as the donor may not have agreed to providing their data to the charity - in which case a charity may find itself liable without knowing who the donor is. This is an area that requires further discussion. 4

5. Universal Gift Aid database 5.1 We welcome the inclusion of the UGADD proposal for discussion in this consultation as it is important that more radical options are carefully considered in order to ensure that Gift Aid is fit for the future. There would be benefits, for charities and donors, in developing such a database in the context of overhauling and dramatically streamlining the entire Gift Aid system. 5.2 The HMRC framework: We believe that it is important that any system such as this be developed within a HMRC framework, whereby HMRC or an organisation commissioned by them, would hold the donor’s consent and manage its administration. At the moment proposals centre around an independently managed database approved by HMRC which we feel may lead to issues in terms of commercial benefits and competition between providers, and would limit the ability to further develop the database in line with changes to the tax system. 5.3 Utilizing existing HMRC data: Exploring database system development alongside HMRC validity checks for claims presents real opportunities to maximise uptake of Gift Aid and charity income from each donation. Such a development would remove the risk of liability to the donor and facilitate a shorter, simplified declaration statement and requirements. This would then supersede many of the proposals in parts 2 and 3 of this consultation. It would also potentially remove some of the administrative burden placed on charities and the audit processes carried out by HMRC. However, we understand there may be considerations as to how this would work when making ‘inyear’ claims, and we would not want such a system to limit the speed at which Gift Aid is paid or alter the premise. 5.4 In the absence of HMRC playing a central role in delivering and funding the development of a database, we are of the view that there are significant challenges in the workability and impact on Gift Aid take up of the proposals.

Chapter 1: Introduction 1. Are there any general points about Gift Aid that you would like to raise with Government? Gift Aid is a highly valuable tax relief on donations and a very successful scheme from which charities benefit hugely. The expansion of the scheme in 2000 made gifts of any size eligible, resulting in a significant shift in the value and use of the relief. Since 2003, there has been a 73% increase in the amount of Gift Aid repaid to charities1. However, following a period of relatively rapid uptake, annual growth in donations using the scheme has now levelled at

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Source: http://www.hmrc.gov.uk/statistics/charity/table10-4.pdf

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roughly 3% per annum2 and overall take up is estimated to cover just over a third of all individual giving to charity3. The scheme has arguably become more complex over time, largely due to an approach whereby incremental changes were made at various junctures, rather than one of wholesale reform. That said, we do acknowledge the progress made in these earlier reviews and initiatives; in 2000 to increase the scope of the relief, in 2004/05 on admission fees, in 2008/09 on transitional relief and most recently the move to Charities Online, the Small Donations Scheme and the simplification of retail Gift Aid. While many of these measures, taken in isolation, have sought to simplify the scheme or make it more accessible to different forms of income, collectively they have added to a heavily bureaucratic and complicated system. We urge the Government to seize this opportunity to make a lasting and sustainable difference to ensure that the Gift Aid system is both simplified and fit for the future. There is clearly considerable potential to expand use of Gift Aid, in line with the Government’s stated ambition of ‘encouraging more people to donate by increasing the value of their gift, and maximise the possible income to charity from each donation they receive’, and ultimate goal to have ‘Gift Aid claimed on as many donations as possible’. We welcome the clear articulation of this positive vision, and suggest that it is used as the basis for Government communications around Gift Aid, and as the broad measure for assessing the effectiveness of Gift Aid policies. This consultation is timely given changes in the channels through which people give. While our evidence suggests that between 2009 and 2012, the proportion of people giving through online and digital platforms stayed relatively low and stable (see Chapter 5), we anticipate that this will increase in the future. Traditional forms of giving such as cash and direct debit donations remain the most popular methods at present. Any reforms to Gift Aid will need to be fit-for-purpose for traditional and more widely used methods. 2. Beyond digital giving, what other barriers to take-up of Gift Aid do charities experience? Notable barriers for charities to take up of Gift Aid include4: 

Burdensome administration and audit processes: Some charities are put off by the cost and bureaucracy of requirements associated with needing to have a clear audit trail between the donation and the taxpayer e.g. storing paper forms for up to six years or having to scan them into a system. For small charities in particular, the requirements can appear excessive in exchange for a minimal financial return, particularly for one-off donations. While we hope that the Small Donations Scheme will provide opportunity to increase Gift Aid type payments for the smallest donations, the Government has made clear that this is no replacement for Gift Aid and that it is hoped to bring more charities into the Gift Aid scheme. We would therefore encourage Government to ensure that simplification of administration for Gift Aid is at the heart of any reforms.

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DSC, 21 years of Gift Aid DSC, 21 years of Gift Aid 4 CFG, CTG, SCC, Stewardship, CLAS, IoF Gift Aid Simplification Survey Results (2010) 3

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Fear factor: Some charities have reported concerns about the risk of error that, unintentionally on the charity’s part, may come to light through a HMRC audit or online checks, and that can result in the charity and/or its donors facing an unexpected tax charge or penalty. While the risk of penalties may be more perceived than real, it is sufficient to put some charities off claiming Gift Aid altogether. It is important to recognize that where errors have occurred, often this is due to genuine mistakes rather than deliberate actions. Government should adopt a more positive approach to audit by reassuring organisations that it will support them in getting it right rather than looking to catch them out, which is often the perception. Text donations: Text donations are a growth area for the sector; however, take up of Gift Aid remains stubbornly low. This is largely due to the requirement to follow up with donors in order to receive a declaration following an initial interaction. The principle barrier to simplifying this process appears to be the transfer of data from mobile providers to the charity, which is not currently permitted. The charity has to rely on the declaration being completed at the time of donating, which is not always feasible on mobile and tablet screens. Under Proposals 2 and 3 of this consultation, the potential for mobile operators (and possibly banks in the future) to take on the role of intermediary may help to overcome this issue. Specific fundraising areas: There are a number of specific areas of fundraising activity that members regularly raise issues concerning complexity that acts as a deterrent for take up of Gift Aid. These would benefit from further clarity and include how Gift Aid interacts with benefit rules, Gift Aid for membership schemes, and capturing and calculating Gift Aid on events, sponsorship forms and auctions. Difficulty understanding the tax benefits available to charities: Understanding even simple HMRC guidance on registration for Gift Aid (particularly that accessed through the website) is often cited as a barrier to HMRC charity registration. This is likely to be more difficult for smaller organisations with few paid staff – in 2010/11, 84% of the charity sector was made up of micro and small organisations, with mean incomes of £2,800 and £34,800 respectively56. Simpler, more accessible guidance on the charity tax landscape would be helpful for organisations with limited resources to engage with HMRC and benefit from schemes such as Gift Aid. Deterrents for donors: Donors can be reluctant to sign up due to the lengthy Gift Aid declaration, requirements for data that they may prefer to keep private, e.g. home address, and a general sense of apathy at being asked for additional information. In principle, HMRC should seek to facilitate a Gift Aid declaration process that is as seamless as possible for the donor.

3. Do you think a phased implementation of the changes to Gift Aid proposed in this consultation document would be the best way to proceed? We understand from Working Group discussions with Government that reforms could be delayed until Finance Bill 2015. We welcome a phased implementation of changes if the aim is to ensure that issues in the consultation can be explored in full, with a view to radical reform to future proof Gift Aid for technological developments. We think that further discussion on the more detailed and technical aspects of reforms and implementation,

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CAF, Digital Giving: Modernising Gift Aid; Taking Civil Society into the Digital Age (Sept 2010). DSC 21 years of Gift Aid 2012 NCVO Almanac 2013

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either through the Charity Tax Forum or a sub-group, will be necessary. We would also be in favour of allowing time for customer-testing and behavioural insight research on the impact of changes to the declaration. Additionally, building in further reviews once reforms are implemented will be useful to assess the impacts of reforms on donor behaviour in practice, the consequences for charities, the intermediary market, and to ensure for appropriate responses to technological developments in digital giving.

4. What new promotional materials – leaflets, website materials and other products – could the Government usefully provide to help increase take-up of Gift Aid? There is great scope for Government to increase its promotional activity around Gift Aid, with efforts targeted on: a) Increasing donor awareness and understanding of Gift Aid and the declaration process Adopting a customer-centric approach could be usefully applied when reviewing communications targeted at donors. Government could utilise its wider communication channels with taxpayers, to include information in annual tax returns explaining in plain English what Gift Aid is and how it can be used. This could also be promoted more widely through adverts on the gov.uk website. Messaging for such campaigns should be positive, perhaps emphasising how much cumulatively charities have received in a year though the Gift Aid scheme, in addition to more regular messages relating to the Gift Aided value of a £1 donation. b) Increasing charity understanding and confidence in Gift Aid promotion and claiming process HMRC could seek to vastly improve the accessibility, navigation and functionality of the guidance on its website, so that information on Gift Aid could be accessed by all interested stakeholders (including donors, charities, auditors, intermediaries) in an accessible manner. Simple and cost-effective measures such as creating a more user-friendly website landing page on all information about Gift Aid would help increase engagement with the scheme. Information is currently displayed in the form of relatively technical tax guidance which may be off-putting for donors and charities, especially smaller organisations who already display a wary attitude towards tax issues. Simpler leaflets and factsheets that have been produced are often difficult to find on the website. We also think that the Government Gateway offers an opportunity to bring together information on both Charity Commission and HMRC in one place, so that charities looking for information about regulation, can at the same time and in the same place, find simple information they may need about Gift Aid, and other tax reliefs or zero ratings available. While we understand that the Commission and HMRC are different bodies regulating for different purpose, we would also stress that this is not necessarily the way that operational charities approach the system. Adopting a customer-centric approach from Government and the Commission would be hugely welcome so that, for example, when registered charities submit their Annual Return, they are reminded about the benefits of Gift Aid. (We 8

understand that an additional question has been added to the Annual Return asking whether charities claim Gift Aid and consider this a positive step. However, this link could be highlighted further.) c) Increasing charity registration with HMRC for tax purposes We welcome the Government’s intention to explore dual registration between HMRC and the Charity Commission following recommendations in Lord Hodgson’s review ‘Trusted and independent: giving charity back to charities - review of the Charities Act 2006’. The Government should actively encourage increasing the number of registered charities with HMRC for tax purposes as it is likely that fewer than 50,000 charities registered with the Charity Commission currently claim Gift Aid (see Annex 1). Ensuring that registration with HMRC for tax purposes is as simple a process and linking it with Charity Commission registration will be a major factor in maximising the sector’s use of Gift Aid.

5. What should these materials contain to be most helpful in encouraging donors and charities to use Gift Aid? 

Provide template texts explaining Gift Aid: This would be useful for charities to use in communications to donors to correctly explain in simple terms what Gift Aid is, how it works and how to make a declaration.

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Ensure consistent positive messaging: Government should seek to work with the sector to develop joint messages to encourage greater uptake of Gift Aid. This would reassure donors on the details around Gift Aid, as they receive the same information from whichever source they consult.

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Simple how-to guidance on the HMRC website: This should include simple basic stepby-step guidance for donors on how to declare Gift Aid, and for charities on how to collect declarations and claim Gift Aid.

6. Might rebranding Gift Aid help increase take-up? How? We consider that Gift Aid is a well-established brand, which has been widely used by charities over the past 25 years. This has led to a reasonable level of public awareness of its existence and purpose, and a relatively good understanding of the scheme within the sector. Changes to the Gift Aid brand may result in the perception among charities that there are changes to how the scheme operates. This confusion could hinder use of Gift Aid and put unnecessary burdens on Government and the sector to reassure organisations about the scheme. Rather than investing in a whole new rebrand, greater investment should be made in promoting the existing scheme and brand, with a mind to re-launching the scheme. Simple activities to update the visual identity of the scheme could include modernising the ‘Gift Aid it’ logo, helping the brand become more accessible and engaging, especially on dynamic digital platforms. However, we believe efforts and resources targeted towards shortening 9

the declaration and developing a long term plan for future-proofing Gift Aid would be more beneficial to increasing uptake and should be prioritised.

7. How can the Government work with the charity sector and its representatives to disseminate promotional material on Gift Aid? The Government’s policy objective is:  

to encourage more people to donate by increasing the value of their gift, and to maximise the possible income to charity from each donation they receive.

Given this we believe there is a strong case for Government to invest in the support and growing the use of Gift Aid. Financial support, for example from the Innovation in Giving or Social Action fund pot, could be made available to promote Gift Aid more widely to the public. This campaign could be run by a group or consortium of charities to ensure that the sector’s donor knowledge is used to communicate the realities of Gift Aid effectively to the public and that charities are able to take control of how the benefits of the scheme are communicated. This could build on the approach HMRC adopted for the Charities Online communications, where a range of sector bodies, including CFG and NCVO, were represented in a sub-group. This group facilitated co-ordinated messaging to charities through sector media and umbrella bodies, and enabled sector bodies to feed their experience into HMRC communications. We would be willing to engage in future groups such as this to promote the wider uptake of Gift Aid. We would also encourage HMRC representatives to increase direct engagement with our membership and other stakeholders by attending events, conferences, briefings and updates on Gift Aid related issues. HMRC could also explore other media, such as podcasts, that can easily be circulated to the contacts and members of umbrella bodies. Evidence of behavioural approaches to Gift Aid, should be used in the development of communications. For example, improved understanding of how donors respond to different Gift Aid asks will bear particular relevance in informing changes to the declaration. The Government should also seek to explore and encourage larger scale promotional opportunities through working with high-profile charity events such as Comic Relief and the London Marathon to promote Gift Aid. These communications would reach a wider audience than those already donating, build awareness, inform at the point of giving and target spontaneous donations.

Chapter 2: The Gift Aid declaration 8. Do you agree that it would be helpful to enable charities to shorten the Gift Aid declaration in this way, provided they were prepared to accept liability for a charge to tax where the donor had not paid enough tax to cover the Gift Aid? a) A shorter declaration 10

There have been long-standing concerns about the length of and requirements for the Gift Aid declaration. We agree that in the interests of equity the donor should be given sufficient information to understand their tax obligations under the scheme. However, we are not convinced that the current declaration, with its reference to four types of taxation and two dates, leaves donors with a significantly greater understanding of their obligations, or that it is the best use of wording to achieve this. Much of the anecdotal evidence across the sector and among our members suggests the declaration itself deters donors from declaring Gift Aid. HMRC revised the model declaration in 2012, adding additional reference to Council Tax and VAT, which we think is unnecessary and excessively cautious as this is already covered by the reference to Income and Capital Gains tax. We strongly recommend that the current model be reviewed again to determine what the absolute minimum legislative requirements for a shorter declaration would be. In addition to removing wording related to Council Tax and VAT, we would ask HMRC to review the dates of the tax year and make clear in the model declaration that the reference to CASCs is not necessary for a charity. We would also be in favour or a declaration that was more positive in tone. The Government has said that error rates are lower with the longer declaration and that this is believed to be due to more complete information being provided to the donor. However, we believe that this should be considered in the context of the materiality of error occurring. It is difficult to carry out a robust cost-benefit analysis on the declaration without more data on the error rates and frequency due to faulty declarations and insufficient taxes paid, and the scale of this relative to overall Gift Aid reclaims in any given year. Overall our inclination is that the difficulties associated with the longer declaration and the level at which it impedes donor understanding means that, although the error rate may be slightly lower with the current longer declaration, the impact on Gift Aid take-up overall is negative. This does not support the policy aim of increasing the level of Gift Aid recovered on donations. However, more evidence and data on this will support the sector to better understand the Government’s position. It may also be that a shorter but clearer version of the declaration would also lower error rates in a similar way without impeding take up. Presentation and language used in the declaration are important factors in the donor’s experience and so must be encouraging and positive towards Gift Aid. As such, we do not agree with the proposed text for a shortened declaration in Box 2.B in the consultation document, and question the need for the last line, which we think would be a strong deterrent for donors, particularly given that there is no mention of “checks” in the current declaration. Instead we propose a new declaration along the lines of the following: “I confirm I will pay enough income tax or capital gains tax this year to cover the tax relief this charity can reclaim on my donation. I understand that the tax relief will equal 25 per cent of my donation.” This declaration informs the donor which taxes the relief is linked with, the date in which the tax should have been paid, and the link between the tax relief and the donation – all aspects which are covered in the current declaration. We would also encourage HMRC to work with the sector and assess the impact wording has on donor understanding of the declaration and 11

resulting behaviour. Customer testing or behavioural insight research may lead to a better outcome and ensure that it is encouraging increased uptake of Gift Aid, and not creating unintended barriers. In reviewing the declaration we would ask HMRC to be open minded in their approach, and to consider the spirit in which Gift Aid is intended and the materiality of the levels of error (due to faulty declarations or insufficient tax paid), rather than reverting to rigid catch-all definitions. We believe this is possible with the Government’s open approach to changing legislation in order to meet the requirements of a new declaration.

b) Shifting liability to the charity We are opposed to the proposal to require the charity to accept liability for tax charges . While we are aware that many larger organisations are happy to accept a tax charge on behalf of their donors where it arises, making this a requirement would be unfair on smaller organisations that may not be in a financial position to pay an unexpected charge. If such a change arose, it would alter the relationship between the charity and the donor and in principle place an increased risk on the charity. This could potentially lead to charities having to hold additional sums in reserves, as Gift Aid could not be fully confirmed until after the HMRC period for audit had passed (4 years). HMRC audits occur on an ad-hoc basis, and it is unlikely that a charity would have factored potential claw backs from Gift Aid into its financial planning. NCVO research shows that in 2010 up to 42% of operating charities did not hold any free reserves[1], and therefore some would potentially be concerned about cash flow problems if liability shifts to charities. This could have a further detrimental impact on numbers of charities claiming Gift Aid, as we already know that some organisations under current regulations choose not to claim eligible Gift Aid due to fears around audits. We would not want to see a decline in charities claiming Gift Aid as a result of a liability shift, added complexity or the perceptions surrounding this, as this would undermine the overall objective of this reform. We highlighted to HMRC that it would be helpful if they could share details with the sector about the average level of error the encounter on audits of charity, by size, due to both 1) the donor not having paid enough tax and 2) process failures by the charity. This would facilitate a more complete understanding of this proposal, and also enable charities to assess the likely risk of error they may experience in an audit. We would also encourage HMRC to share the proportion of reclaims they make where the charity chooses to pay, and the average size of those organisations. This proposal is based on the assumption that a shorter Gift Aid declaration will increase the risk of error. However, it is commonly felt that a clearer declaration would in fact have the opposite effect as donors would have a better understanding of the declaration they are making. The shift in liability may therefore be redundant and add complexity rather than anything else. Overall, under the current operation of Gift Aid as an opt-in scheme, we believe that the liability should rest with the donor in order to retain the fundamental link between the [1]

Source: NCVO Almanac 2013

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donor, their tax arrangements and their decision to declare Gift Aid. However, if Government are forward thinking in their planning, we think there is considerable potential to achieve a step change in take up of Gift Aid, and overcome many of the current barriers, through the introduction of a HMRC backed database and a system of cross checking the donors consent and eligibility against HMRC records.

9. Do you think a reasonable limit for individual donations that can be made using a shorter Gift Aid declaration, as set out in Proposal 1, would be £1000, £5000 or somewhere in between? If not, what limit would seem reasonable and why? We disagree in principle with the idea of a two-tier system as it has potential to cause more confusion for charities and complicate the Gift Aid process where the donor crosses the threshold. We think that ultimately this would create more uncertainty, which could become a new barrier to charities claiming Gift Aid. Rather than simplifying the system, we are of the view that this proposal would further complicate it. We also have some concerns about how charities would implement and administer this, and the associated costs. For example, there may be overhead costs associated with providing different versions of the declaration for different values of donations. It would also require the donor to understand which declaration to choose according to the value of their gift, which again could create confusion and another deterrent to claiming Gift Aid. As we disagree in principle with this proposal, we are unable to provide comment on reasonable limits for individual donations under a shorter declaration.

10. Given the complexities outlined above, how do you think a tax charge should fall to charities where a donor has only paid enough tax to cover some of the Gift Aid on donations they have made in the year? We think the proposal above would be excessively complicated and add additional layers of complexity to the system for both charities and Government were it to be introduced. As the donor may have donated to multiple charities in the year, HMRC could reclaim from the charities involved the proportion of the charge that is relative to the size of the donation received. It would be difficult to identify an alternative method that would be fair and equitable to affected organisations in this case. However as stated in question 9, we do not support this overall proposal.

11. Do you agree that HMRC should be able to tell charities which donations tax charges relate to?

While we understand HMRC’s rationale for this in the context of the current proposal, we have concerns around potential impacts on donor behaviour. It is unlikely that donors would be comfortable with the possibility that a charity might be informed of their tax position as a consequence of failing to pay enough tax in the previous year. Donating is a 13

voluntary activity with no return benefit to the donor, and therefore the risk of released tax information may deter donors from giving to the charity. Moreover, reference to this would need to be included in the Gift Aid declaration and could be equally off-putting for donors as the current long declaration. We understand the rationale that should charities accept liabilities, identifying those donors incorrectly declaring Gift Aid will be necessary in order to prevent continuous claw back for claims against these donations, especially in the case of regular direct debit donors. It is likely that many organisations would place the importance of maintaining good donor relationships over auditing responsibilities and so would deem formally accepting liabilities unfavourable.

12. Bearing in mind the need to retain a link to donors’ tax affairs in order to retain Gift Aid’s status as a tax relief, are there any other changes you think it would be possible and helpful to make to the Gift Aid declaration?

It is important that HMRC engage with the fundraising profession in adapting the Gift Aid declaration and in considering donor behaviours. We have made suggestions above as to the potential wording of the declaration. It is our view that a short, simple and clear (plain English) declaration is required to increase take up, maintain donor control and reduce error rates.

Chapter 3: Gift Aid: a greater role for intermediaries 13. What intermediaries exist now? If the Government makes changes to Gift Aid to make it easier to claim on donations made through intermediaries, what new intermediaries might emerge to support donations to charity?

There is currently a wide and growing range of intermediaries including:    

Specific giving websites such as Justgiving, Virgin MoneyGiving, Text giving providers eg mobile network operators, Online retail agencies e.g. Ebay, micro donation schemes, Payment providers and processors eg Paypal, Visa, Mastercard, WorldPay, Barclays Pingit.

Many of the specific giving websites are operating successfully within existing Gift Aid rules, and we would urge Government to understand in full the limitations they face and the extent to which the proposals below would deliver the policy objective of increasing the take-up of Gift Aid. We understand that the benefits would be considerably greater for text giving, where charities encounter problems with identifying donors and claw back, and for payment processors, many of whom have yet to provide this service.

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Ideally, as a result of the changes, we would see existing organisations which are already part of the payments process and that already benefit from substantial and accurate data capture, become Gift Aid intermediaries and build a declaration for charity donations into existing processes. These could include banks, payment service providers (e.g. Visa, WorldPay) and mobile network operators. This move would embed the consent process further up the transaction chain and help facilitate a more seamless process for donating and collecting Gift Aid. However, these organisations will only step up as potential intermediaries if they recognise some commercial benefits of taking on the additional role. We recognise that this comes at a cost to charities. Where the process is managed seamlessly and reduces the administration burden faced by the charity, many charities are willing to absorb reasonable costs. However we would urge government to be mindful of the cost to the charity in any proposals they take forward. If these proposals are implemented it is likely that new organisations set up purely as intermediaries will emerge. While we recognise that new entrants to the market (and indeed developing the market) could aid innovation there are a number of implications which will need to be considered: a) Having a large number of intermediaries could lead to increased administration and processing costs for charities. Charities already have to manage relationships and monitor donations coming in from a wide range of sources. Increasing the number of potential sources is likely to add to this complexity and makes it difficult for charities to exercise due diligence with regards to other organisations linking them with their donors. b) Having a large number of intermediaries could raise questions around integrity and accountability. At present some of the existing donation platforms are recognized and trusted names by both the charity and donor. It is also relatively easy to assess smaller giving platforms. If the number of players in the market sharply increases, it will be harder to assess the reliability and sustainability of new entrants. The recent suspension of Charity Giving, the fundraising platform run by the Dove Trust (itself a registered charity) received a large amount of negative media coverage. If more, similar stories were to emerge as a result of a wider range of intermediaries, and in particular non-charity intermediaries, it could damage public trust and confidence in the longterm.

14. What are your views on the requirements placed on non-charity intermediaries and the regulatory powers the Government would need to take under Proposal 2?

We are in agreement with the features of the regulatory regime listed in the consultation document. As outlined in question 13, any questionable actions by intermediaries will undermine public trust and confidence.

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While we recognise that excessive or onerous regulation stifles innovation and start up organisations, we are strongly of the view that the system is shaped with the following principles in mind:    



Government should vet new non-charity intermediaries appropriately, Payments should be made within a reasonable timescale (e.g. 30 days), Only regulated charities would qualify for receipt of donations, There must be sufficient protections on both the Gift Aid and the donations to protect donor funds and the tax relief in instances where the intermediary may find itself in financial difficulty. Furthermore, Gift Aid claims should not appear on their balance sheet as income to bolster their financial position, We also agree that HMRC should have powers to impose penalties and remove approved status, and that the intermediary should have to pass the fit and proper persons test.

Additional considerations are: 





There should be rules in place which avoid situations where a charity has donated funds ‘held to ransom’ and unlocked only if fees are paid to the intermediary. We have encountered situations where funds are paid only if the charity signs up to the website. To prevent this, intermediaries should either be required to fundraise on behalf of all charities registered with the Charity Commission or HMRC (if feasible) or alternatively only be able to fundraise on behalf of charities already signed up to their service. Speculative fundraising is not fair on charities or donors who Gift Aid in good faith and may not be aware of the relationship or lack thereof, between intermediary and charity with potential charges falling to the charity. Consideration could be given to making the system available only to those organisations which are able to demonstrate some form of a track record (i.e. not solely set up as a result of the changes) to avoid the market being flooded by new entrants. Government may want to ensure that appropriate regulation is in place for off-shore intermediaries accepting donations from UK donors for UK registered charities.

15. What sorts of features do you think intermediaries would need to have to have? What sorts of organizations should be able to be intermediaries? Intermediaries should display approved certification on their digital giving platforms, to demonstrate to charities and donors that it meets HMRC approval and regulatory requirements and subject to HMRC audits, as outlined in the proposals. With the likelihood of the intermediary market growing as a result of these proposals, clear and simple identification of trusted intermediary providers would give confidence to charities and donors to know which providers to use. Intermediaries will also need to be able to explain to donors exactly how collected data is stored and used, and what data is shared with the charity, and what charges are associated with the provision of their service.

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16. As set out above, the Government intends to put in place two requirements under Proposal 2 – a time limit on declarations, and a requirement to ask donors if they wish to Gift Aid each donation – to reduce the risk of Gift Aiding a donation in error. Are there other methods to protecting donors against the risk of over- claiming? We are of the view that a one year time limit on declarations is quite short and would result in lower levels of take up. There are also concerns that this might put enduring declarations at risk. We would prefer an extended timeframe for renewal or alternatively an ‘opt out’ approach reminding donors to cancel their declaration if their tax status has changed. We are also of the view that asking donors to Gift Aid each new donation may be quite onerous, and would be in favour of informing the donor that the donation has been Gift Aided in line with their prior agreement.

17. Would it be helpful to place a requirement on intermediaries to inform donors how much they had donated that year, with the amount of tax required to cover Gift Aid on those donations? Yes. Intermediaries could provide a donation statement as part of the ‘My Account’ profile for donors signed up to its service, much like an online bank statement to highlight how much has been donated in the year to date and how much Gift Aid has been claimed. There is a clear rationale and good opportunity for intermediaries to improve their giving platform functionality to provide information to donors about their Gift Aid allowances, as it would be accessible at the point of giving and in a familiar and simple format. This would not be particularly onerous for intermediaries as they already create profiles for website users and have access to this data through donation payment processes.

18. Do you think intermediaries will offer to claim Gift Aid on behalf of charities as set out under Proposal 2? Yes, there would be a business rationale in claiming Gift Aid on behalf of charities as donor details and for the declaration to be maintained with the intermediary rather than passed on to the charity. This provides additional opportunity for financial profits by charging charities for donor details and continued subscription fees with the intermediaries in order to access those Gift Aid claims.

19. What do you think the consequences of the intermediary taking on liability might be? 20. If the proposals in Chapter 2 are adopted, do you agree that the liability for tax charges arising where the donor has not paid enough tax to cover a Gift Aided donation should fall to the intermediary? Or would it be more appropriate for the liability to fall to the charity? We are unsure that intermediaries will want to take on liability unless there is a strong commercial imperative for them to do so, which would most likely result in excessive costs 17

for the use of the service to the charity. It is likely that most intermediaries will stipulate in the contract that repayment or claw back will be sought from the charity in instances of error (i.e. the donor not having paid enough tax). We have concerns that Gift Aid liability for donations could easily exceed the administration fee and handling high volumes of claw backs could be difficult for charities. However, we would assume that the intermediary would take on liability in instances where their processes were at fault.

21. What might be the advantages and disadvantages of Proposal 2 for charities? Proposal 2 offers clear advantages and disadvantages for charities in processing Gift Aid claims, as outlined below. However on balance we believe that charities are exposed to more financial risk with this proposal. Advantages: 

 

There would be reduced administrative burden for the charity in making Gift Aid claims with HMRC as all donations and associated Gift Aid would be handled by the intermediary and passed to the charity. The single declaration for donors would potentially increase revenue through increased uptake in Gift Aid. Charities claiming text donations have suggested that this approach would work effectively for mobile/text donations where take up of Gift Aid is currently low.

Disadvantages: 



The key disadvantage of this approach is that the donor information may not be passed to the charity, unless there is a clear agreed contract between the intermediary and the donor, which is likely to come at an additional cost. Having access to donor information is crucial for many charities in order to build a strong, long term relationship between the donor and the charity. In this proposal the intermediary will have control of this relationship not the charity. We also consider that this approach may result in more complex contractual terms between charities and intermediaries over liability issues and result in potential for increased fees from intermediaries for taking on liabilities, and increase the risk of intermediaries not processing Gift Aid at all due to increased liabilities. Charities could find themselves in a situation where they are exposed to constant claw backs of erroneous Gift Aid claims with no control over improving process.

22. How can charities’ relationships with donors be protected under Proposal 2? Building and maintaining donor relationships is important to charities in fostering support for their causes and building future fundraising capabilities as it helps them to:   

Create future long-term fundraising opportunities, Demonstrate evidence and impact of donations, Provide donors with more information about the charity and its cause(s), 18



Inform and engage with donors on key issues, creating networks and communities of interest.

The expectation of passing on donor information to the charity could be built into this proposal. We would expect that most charities and intermediaries would seek to negotiate this as part the service and contract. Donor consent would obviously need to be sought at the outset. For some intermediaries, such as payment providers, the donor may not be intrinsically aware of the process of donating through an intermediary. This will be less of an issue than, for example, when they are consciously donating through a retail or fundraising website, where this should be considered.

23. Do you think Proposal 2 would lead to an increase in Gift Aid going to charities? What is the evidence for this? We don’t have any concrete evidence to support the view that Proposal 2 would increase Gift Aid going to charities. However, it is likely that any process that removes friction from the process of donating, and draws on available data (effectively removing the need to tick another box) is likely to result in an increase in Gift Aid. We know that this approach could be particularly beneficial for text donations, where an intermediary may have access to personal data.

24. Do you think Proposal 2 would lead to an increase in overall donations to charities? What is the evidence for this? We don’t have any evidence to support this, and don’t think that this proposal alone would increase overall donations to charities.

25. What are the advantages and disadvantages of Proposal 3 over Proposal 2? Advantages: 



The main advantage is that the charity would have access to the donor’s details, as they would be making the claim. Access to the donor’s details would mean that the charity could thank the donor and commence building a strong relationship with the donor. It would also enable charities to keep track of individuals who are occasional supporters of their cause. We think that the direct costs to the charity under this proposal may be slightly lower than in proposal 2, as the onus of making the claim and responsibility for maintaining the integrity of the data would not sit with the intermediary.

Disadvantages: 

Because the declaration is taken by the intermediary but responsibility for collecting the Gift Aid lies with the charity, it is possible that the data may not be collected and held in a particularly accurate way by the intermediary, resulting in complications for 19

charities when claiming or being audited. If the intermediary has full responsibility for both the declaration and the claim, under contract with the charity, it has been suggested that there may be better data capture and maintenance, resulting in higher claim rate.

26. What are your views on the option that both Proposals 2 and 3 should be available in parallel? We would be in favour of a simple, single process. We have concerns that operating both processes would lead to undue complexity in the marketplace and create confusion for charities, and possibly donors. A uniform model that is well understood by users (including costs and charges) is easier to justify and communicate to supporters. Any proposal should be regulated in line with the principles set out in question 14, and should facilitate effective transfer of donor details between the charity and the intermediary.

27. Do you agree that intermediaries should be liable for invalid Gift Aid declarations and any repayments required or penalties issued in relation to these? Or should charities be liable, given they will have received any Gift Aid paid out on these incorrect claims? Principally, liability for tax charges where the donor has paid insufficient tax to cover the Gift Aid on the donation should remain with the donor, with the option of the charity paying it continuing to be available. However, we are of the view that the intermediary should be held liable if a declaration is invalid due to the intermediary’s processes or the way it has used the declaration. A financial penalty such as this would incentivise an intermediary to ensure it consistently improves performance management and reduces administrative error rates. This should be reformed within current practice, and not just a consideration for proposals for future reforms of Gift Aid as outlined in the consultation. Although, we are concerned that in practice any claw back for invalid declarations would be written into contracts with the charity. It would be unacceptable for intermediaries to pass on liability risks to charities through contractual costs or arrangements. Due to these potential issues, we are of the view that this is an area that requires further consideration and discussion exploring a range of options. For example, HMRC could explore whether there could be an assessment of reasonable effort for intermediaries.

28. If Proposal 1 (in Chapter 2) and proposal 3 are adopted in combination, should the charity be? Or should the liability for the tax charges fall on the intermediary? As outlined in earlier responses, we are firmly of the view that the liability for tax charges where the donor has paid insufficient tax to cover the Gift Aid on the donation should remain with the donor, with the option of the charity paying it continuing to be available should it wish to do so. This should sit alongside a shortened declaration. 20

29. Would intermediaries be content to operate Proposal 3? We don’t think Proposal 3 is vastly different from the current process used by some intermediaries. However it introduces increased HMRC regulation and auditing requirements for intermediaries like Proposal 2, for potentially very little gain, and therefore there is a risk that intermediaries could stop processing Gift Aid claims altogether

30. What would be the advantages and disadvantages to charities of Proposal 3? Are there any advantages or disadvantages for donors? Advantages: 

Proposal 3 would facilitate a simpler process from a single declaration and ensure that the charity still receives the donor’s details. For donors, the single declaration would be simpler to administer.

Disadvantages: 

Under Proposal 3 the charity would still have to administer Gift Aid claims, and accept the liability for declarations that were held and transferred on from an intermediary.

31. Do you think additional HMRC guidance and support would help digital providers to operate Gift Aid more efficiently and make it easier for donors to claim Gift Aid on their donations through digital channels? We welcome the Government’s proposal to share best practice amongst digital providers on operating Gift Aid more efficiently. There is clear scope and need for improved communications and more intuitive functionality on digital platforms to make the Gift Aid process more simple, understandable and attractive for donors at the point of giving.

32. What sort of support could HMRC usefully provide in this area? 33. Would more support in this way be sufficient to improve the user experience of Gift Aid? We think HMRC could provide useful support in providing good practice guidelines for the process for using digital declarations and appropriate audit procedures for charities in these circumstances. This would hopefully result in a simpler, more consistent experience for the donor.

Chapter 4: A universal Gift Aid declaration database a) Universal database 21

The option of developing a UGADD has been mooted for some time; we welcome the inclusion of this proposal for discussion in the consultation as it is important that more radical options are carefully considered in order to ensure that Gift Aid is fit for the future. There would be benefits, for charities and donors, in developing such a database if in the context of overhauling and dramatically streamlining the entire Gift Aid system. We believe that it is important that any system such as this be developed within a HMRC framework, whereby HMRC, or an organisation commissioned by them, would hold the donor’s consent and manage its administration. At the moment, proposals centre around an independently managed database approved by HMRC which we feel may lead to issues in terms of commercial benefits and competition between providers, and in turn would limit the sector’s ability to further develop the database in line with changes to the tax system. Exploring system development alongside HMRC validity checks for claims presents opportunities to significantly reduce administrative burden for charities. This would also be in line with the Government’s policy objective to maximise uptake of Gift Aid and charity income from each donation received. In the absence of HMRC playing a central role in delivering and funding the development of a database, we are of the view that there are significant challenges in the workability and impact on Gift Aid take up in the proposals. These include: 

Finding a suitable unique identifier for donors, or range of identifiers which would be adequate to reassure HMRC of the origin of the donation. Examples which have been suggested include mobile numbers, name, address, postcode, a unique reference or Gift Aid number.



Concerns about how it would be populated in the first instance, given that donors would need to be incentivized to use the database and may have concerns about data privacy, especially if they are passing information to a commercial provider. One approach may be to enable charities to make initial contact with the donor to obtain the declaration. HMRC is likely to also require a high level of safeguards to protect the data of donors if it is to approve such a system; this may have an impact on the level of bureaucracy required to manage the data.



Limited incentive for providers to take on the role of developing and managing the database. To incentivize providers, there would need to be upfront investment to cover startup costs and costs of populating the database. There would also be on-going costs in data cleansing and maintenance and in managing the relationship and service to HMRC and charities. There are questions over whether such a venture would generate sufficient financial return to a provider for it to be worthwhile, if financial return is an objective for the provider. If charges were passed on to users of the database (charities) this brings up issues of regulation and may place a great deal of risk on the sector as a single player could monopolise the system.



Potential costs to charities and questions over whether there was added value for them. The costs of supporting such a system would have to be justified with a good evidence base on whether the system would improve the level of Gift Aid paid out to charities. If 22

complex and involving a number of levels between the charity, the database holder and HMRC, it may be that charities are put off using and registering for Gift Aid altogether. 

The recent transition to Charities Online has highlighted the potential opportunity costs of systems change and training for charities. This would again need to be considered if such a big change were to be implemented as it would have a dramatic impact on the way that charities manage Gift Aid as part of their fundraising.



Concerns about the extent to which any new solution may supersede existing enduring declarations held by charities or other intermediaries as per the proposals made elsewhere in this consultation.

We would be keen to explore more radical options for the future of Gift Aid administration with HMT and HMRC, and are of the view that an overhaul of the current system, drawing on HMRC’s enhanced data capabilities, could truly revolutionise Gift Aid and facilitate its wider take up. We remain unconvinced that the approach to UGADD as set out in the consultation would deliver sufficient added benefits to charities and donors, beyond those that could be achieved by proposals 2 and 3, to justify investment.

b) HMRC and a Gift Aid declaration database We would strongly favour the development of a more streamlined system, for example where HMRC could confirm the tax and Gift Aid status of individuals once claims were submitted. However, we understand there may be considerations as to how this would work when making ‘in-year’ claims, and where the system would not limit the speed at which Gift Aid is paid or alter the premise. We would encourage HMRC to explore the extent to which this data could be matched against existing tax-payer databases. For example, data including name, first line of address and post code, is already collected in a structured way and submitted to HMRC through Charities Online. The recent introduction of Real Time Information (RTI) for all PAYE employers in April 2013, means that HMRC has real-time access to data on tax payments for PAYE workers. We would envisage that HMRC also collects and holds data on name address and postcode for self-employed individuals paying income tax through Self-Assessment. Further technology development could present huge opportunities for greater comparability and cross referencing at an earlier stage, although the implications of this on the way that charities manage their data would have to be considered. Such a development would remove the risk of liability to the donor and facilitate a shorter, more simplified declaration statement and requirements. This would then supersede many of the proposals in part 2 and 3 of this consultation. It would also potentially remove some of the administrative burden placed on charities and audit processes carried out by HMRC. It is recognised that the charity would still need to be able to demonstrate that the named donor had made a donation and consented to their tax rebate going to the charity. This element of donor choice is likely to remain important for donors and charities, and is one of the principles of the system that we think is important to maintain. 23

Chapter 5: Assessment of impacts 50. In your view, what proportion of relevant donations to charity are made through ‘new’ digital giving channels compared to more traditional forms of giving? UK Giving 20127 suggests there has been no significant rise in the proportion of donations made online between 2009/10 and 2011/12, with this figure remaining at 7% across this time (though it did increase from 4% in 2008/09). UK Giving also looks at giving by phone (1% of donors using this method in 2011/12) and by text (2% of donors in 2011/12). In 2011/12, giving through more traditional methods was more widespread (cash 50%, direct debits 31%). However, this question in the UK Giving survey may miss some of the trends in online giving. While the survey question asks about method of giving, in some cases these methods may overlap. For example, a direct debit could be set up on online. We are aware however that this is a growth area and as tablets are increasingly used, we anticipate seeing further growth in coming years. 51. Are these genuinely new donations, or would they otherwise have been made through a different channel? UK Giving 2012 reported that the total amount donated between 2010/11 and 2011/12 fell by 15% (in cash terms), and proportion of people donating to charitable causes in a typical month has decreased over the last year from 58% to 55%. This suggests that online giving is not generating significant amounts of genuinely new donations. While anecdotal evidence from our members confirms this view, at this juncture it is difficult to fully assess future trends in this area. 52. What proportion of the donations made through new digital channels is currently Gift Aided? How does this compare with other donations of a similar size? This is the sort of data that charities themselves and intermediaries would hold. Neither of our two main data sources contain this data: charity accounts do not record income by different channels of giving from individual donations, and the UK Giving survey doesn’t allow gift-aided donations to be broken down by method. 53. Given the size of the donations, what is the maximum proportion of these donations that might practically be Gift Aided? No one source of data comprehensively maps the total amount donated, how much uses Gift Aid and what the size of donations are. Difference in methodologies mean it is difficult to triangulate between the three main sources of data – charity accounts, UK Giving (a survey of individuals) and data released by HMRC. Charity accounts do not record individual donations and Gift Aid repayments separately – and therefore it is difficult to ascertain how much of the sector’s donations have had Gift Aid claimed against. 7

Source: UK Giving 2012

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54. In your view, what effect might the proposals in this document have on the proportion of donations that are Gift Aided, taking into account: a) only donations made through ‘new’ channels; A single declaration for intermediaries would see a rise in Gift Aid claims, particularly for text donations, as there would be reduction in administrative burden and chance for error. This has been cited as a key barrier to date for Gift Aid claims on digital platforms. Formally shifting liabilities to charities or intermediaries could see a decrease in the number of Gift Aid claims. Charities may decide not to claim Gift Aid for fear of tax charges and audit errors. Intermediaries may decide to increase in subscription fees for charities to cover costs of potential liability charges or even simply stop processing Gift Aid with their donations. The latter outcome could see a further drop in Gift Aid reclaims from current levels. Additionally, improving website and other digital platform functionalities could play an important role in better informing donors about the tax obligations under the scheme, whilst making it a simpler process to declare. We believe this would be a positive step to increasing declarations for Gift Aid. a) all donations? A shorter declaration could maximise the uptake of Gift Aid through all channels as there is a wealth of anecdotal evidence to support that the longer declaration and lack of understanding of Gift Aid is off-putting for donors at the point of giving to declare Gift Aid. Promotional activities and simpler guidance to raise awareness and understanding of Gift Aid would better ensure that donors are informed and more comfortable with declaring Gift Aid when reaching the point of giving – this would drive a significant increase in the uptake of Gift Aid. 55. In your view, would the proposals in this document have the effect of imposing extra costs on your organisation? How? Would these be start-up costs or ongoing costs? How large would they be? Changes to the Gift Aid Scheme would require resources to inform and provide guidance for our members in understanding and operating the new scheme. This may require on-going support, especially in advice and support services around financial planning should changes such as liability shifts were to go ahead. However start-up costs to organisations claiming Gift Aid may include:  

Start-up costs for organisations to implement the new system. Menu costs for changing promotional materials which deals with or includes information on Gift Aid.

Ongoing costs will be dependent on which proposals are taken forward, and may include:

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  

Increased subscription fees to one or multiple intermediaries as a result of shifting liabilities Additional costs to have access to donor details (Proposal 2) Additional resource in managing multiple intermediary relationships, due to a growing intermediary market as a result of reforms.

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Annex 1 - Charities claiming Gift Aid

1. Overall size of the voluntary sector The Charity Commission’s data shows that there are around 180,000 ‘main charities’ registered in England and Wales. This includes charity subsidiaries, but excludes certain other organisations: 

Scottish and Northern Irish charities



Charities below the Charity Commission registration threshold of £5,000



Exempt organisations (such as: universities, museums, foundation schools)



Excepted organisations (such as: churches, guide and scout groups)



Community Amateur Sports Clubs

It is important to note that many of these organisations will be eligible to register for Gift Aid, even though they are not reflected in the Charity Commission’s figures. NCVO's Almanac data on UK charities shows that there are around 163,000 ‘general charities’ across the UK. This draws on the Charity Commission’s data, with several amendments. In particular, we add Scottish and Northern Irish charities, but count subsidiaries as part of their parent charity.8 Importantly, neither these Charity Commission or NCVO Almanac estimates include excepted and exempt charities. Working with the National Audit Office on a recent study, NCVO has further estimated that there are around 180,000 excepted and 11,000 exempt charities. Including these charities would bring the overall size of the voluntary sector to over 350,000 organisations.9

2. Number of charities claiming Gift Aid HMRC’s published data shows around 63,000 organisations made Gift Aid claims in 2012/13.10 There have been a similar number of claims each year since 2006. As the Economic Secretary commented in evidence to the Small Charitable Donations Public Bill Committee (16 October 2012) that 100,000 organisations are ‘on the books’ with HMRC, it indicates that many organisations are not claiming Gift Aid consistently each year. HMRC has not released information that would enable us to further examine the different types of organisations claiming Gift Aid. However, as mentioned above, they will include a range of organisations that are not covered by Charity Commission data. For example, in the Church of England’s evidence to the Committee (16 October 2012), they referred to 12,500 C of E parishes using Gift Aid. This indicates that the number of ‘general charities’ accessing Gift Aid will be considerably lower than 65,000.

8

For more information on how NCVO’s estimate is developed, please see: http://data.ncvovol.org.uk/category/almanac/voluntary-sector/scope 9 Source: http://www.nao.org.uk/publications/1213/regulating_charities.aspx 10 Source: http://www.hmrc.gov.uk/statistics/charity/table10-4.pdf

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Taking into account the new evidence gleaned by the Committee (about the significant number of organisations claiming Gift Aid which are not ‘general charities’), it may be more appropriate to use the National Audit Office estimate for size of the voluntary sector as our denominator. Therefore, NCVO estimates that less than 1/5 (based on