How should we approach Gift Aid?
If we understand a few simple principles, for 99.9% of all donations, Gift Aid is relatively straight forward. It can look complicated at times, but this shouldn’t put charities off a chance to maximise their fundraising at a time when every pound is getting harder to come by.
Here is a three step process to think about Gift Aid.
Step 1 – are you raising money from individuals? If you are, then provided that they pay tax, you should immediately be thinking about Gift Aid.
Step 2 – are people giving you money freely without something in return? If you can tick the box, then you are generally safe as far as Gift Aid goes.
Step 3 – are you giving them a thank you or recognition for donating to you? If yes, then you can probably still claim Gift Aid, provided that you meet the rules.
Most questions I get are usually ‘we probably can’t do this but…’. Instead we should think in terms of ‘we probably can do this, but I just want to check…’. We should be more positive, more determined to use the tax system to our advantage in 2018. The tax system is supposed to help, not hinder charities.
We need to press the government more on tax
Every Budget tends to involve some tinkering with Gift Aid. The last Budget had some changes on the so called ‘donor benefit rules’ which decide how much your ‘thank you’ to donors can be worth.
But all this tinkering isn’t getting to the heart of the issues we face. Charities are mobilising resources on a scale that couldn’t have been imagined 50 years ago. The principle that has operated during this period has been that money given for public benefit shouldn’t be taxed. This has encouraged giving and enabled charities to maximise their resources. It is why we have Gift Aid, business rate relief, VAT exemptions etc.
Unfortunately, this principle has been muddied and now the system is creaking. Business rate relief has not been properly reviewed from a charity perspective, and this is creating cost pressures at a time when demand is rising and contracts are being squeezed. Gift Aid could be made simpler, but barriers are being put in the way to doing that because of concerns about fraud. Irrecoverable VAT, the single biggest cost to our sector, amounts to £1.5bn a year and not being dealt with but is being subjected to tiny piecemeal changes for ‘popular’ causes like Air Ambulances.
What can we do about the tax system in 2018?
Disappointments and new taxes (e.g. Apprenticeships Levy) mean that charities often look forward with dread towards new Budgets, rather than seeing them as a chance for government to improve the way the system works.
Charities are, to a great extent, all about tax. You don’t need to be a charity to do good. But if you are, it helps because of the tax reliefs you receive. Your money goes further. The extra regulations and governance requirements are mostly because government expects resources to be well managed in return for tax support.
The Minister for Sport and Civil Society, Tracey Crouch, is undertaking a new Civil Society Strategy. NCVO has launched a new Tax Commission. Julia Unwin is doing a huge review of the future of civil society. There are a number of opportunities to put proposals forward to get this right. If we make our voices heard, maybe 2018 will be the year when we reset the tax system for charities.