CTG has convened a working group of charities interested in reviewing the future of Gift Aid, from both a practical and strategic perspective. The working group will complement and inform an existing HMRC-led Gift Aid working group and HMRC
officials have tasked CTG with preparing a paper on this issue, with interim conclusions likely to be published by the end of 2019.

Note of the CTG Future of Gift Aid working group meeting (15 May 2019)

The working group will seek feedback from a wide range of stakeholders including charities (including representatives of smaller charities and other representative bodies), donors, HMRC, software developers, payment specialists and intermediaries. If you would be interested in being involved in this working group please contact info@charitytaxgroup.org.uk.

Members of the working group have identified the following issues which would be worthy of review and consideration

1) Scale of change required: This would include an assessment as to whether Gift Aid can continue in its current form and remain fit for purpose, or whether more radical changes are needed. This may also cover promotion of Gift Aid in future to new generations of donors, including whether the branding and messaging remains appropriate. A further point to consider will be whether it is preferable and/or practical to ensure that Gift Aid rules and processes are consistent across all
types of donations. The future treatment and viability of enduring declarations will inevitably be an important consideration.

2) Principles of Gift Aid: Gift Aid is predicated on the principle that donors should not be taxed on money that they have given away, but there is some disagreement about whether the Gift Aid paid out is simply a redirection of Government funds (which some may argue should not be hypothecated to specific causes preferred by donors) or inextricably linked to income foregone by donors and therefore not within the Government’s gift to give away.

3) Tax to cover: Related to this is the importance of the link between tax paid by donors and Gift Aid. If this link is undermined the relief could risk being re-classified as public expenditure. Potential challenges include devolution of tax rate setting powers in Scotland and Wales leading to a divergence in the operation of Gift Aid and other ideas such as the potential redistribution of Gift Aid (both basic rate and higher rate) and the introduction of a composite rate, which could potentially break this link. Given that there is sometimes uncertainty about whether a donor will have paid sufficient tax during the year to cover their Gift Aid clam could alternative solutions be explored such as franking Gift Aid and linking it to the tax paid by a donor in the previous tax year?

4) Reducing the “tax gap”: The need to protect the integrity of Gift Aid claims and help reduce the estimated “tax gap” of up to £180m of ineligible Gift Aid claims made each year (which is approx. 15% of the £1.2bn total Gift Aid claim). Understanding why ineligible claims are being made by donors or processed by charities (in most cases in genuine error) is important as part of this process. If HMRC has greater resources to tackle ineligible Gift Aid, it will be important to protect donors and maintain donor confidence in Gift Aid, particularly where donors are asked to make
repayments. Donor education about Gift Aid is very important as well as the use of technology to reduce human error.

5) Unlocking unclaimed Gift Aid: While concerns about the tax gap need to be addressed, HMRC sponsored research estimates that £560m of Gift Aid is left unclaimed each year. A major focus for the subgroup will be unlocking this income (and understanding the reasons why it is not currently claimed). Related to this will be identifying way to increase the level of higher rate relief that is currently claimed.

6) Automation and use of new technology: Automation of Gift Aid claims is likely to be become easier improving the resources available to track donor eligibility for Gift Aid by checking whether they have paid sufficient tax to cover their claims. The subgroup will review the possibilities presented by Open Banking, Blockchain technology, Personal Tax Accounts, a Universal Gift Aid Declaration database, tracking real time transactions etc. Automation may lead to a situation where a donation and Gift Aid declaration do not need to be captured at the same time, or every time a donation is made, but donors need to be reassured by this process and personal identifiers need to robust but also practical (e.g. some form of bank identifier may be more attractive than an NI number).

7) Digital gifts and new payments types: The subgroup will consider options for capturing Gift Aid on digital donations, looking at existing technology including SMS and contactless payments, but also how we adapt to new emerging payment types and those still to be invented, ensuing that Gift Aid is future proofed.

8) Outsourcing Gift Aid: The subgroup will review the opportunities and risks of charities outsourcing Gift Aid processing to intermediaries including potential cost savings but also potential difficulties in establishing an ongoing relationship with donors. It will also be important to consider the implications of the costs charged to process Gift Aid.

9) Administration and data: The practical implications of changing technology and payment processes will have knock-on effects for charities and how they process Gift Aid. Implications of data protection will also be important. The implications for Gift Aid audits and recordkeeping/checking will also be important, with guidance updates necessary. Charities will also need  o look at the technology and record keeping resources that may be needed to ensure compliance and maximum uptake of eligible Gift Aid.