On the second Tax Administration and Maintenance Day, the Government set out further technical tax policy proposals that build on measures announced at the Spring Budget and aiming to simplify and modernise the tax system. Of key interest to CTG members are:

1. The announcement of the Government’s future engagement with stakeholders on reforming Gift Aid
2. The launch of  an important consultation on charities tax compliance, with the aim of tackling non-compliance and protecting the integrity of the sector

Policy paper: Summary of Tax Administration and Maintenance: Spring 2023

Future of Gift Aid

The Government has stated that it “will continue to engage with the charities sector to improve the way that Gift Aid works in order to minimise administrative burdens through the use of digital technology.” CTG understands that this will include a review of the current Gift Aid processes, as well as research focusing on whether and how to digitise Gift Aid. This follows on from the Future of Gift Aid work led by CTG.

Also, as part of a review of the Tax Administration Framework there is a commitment to creating innovative change through legislative pilots, including the use of digital sandboxes. This could potentially be helpful to test some of the future of Gift Aid project ideas. A consultation has now been launched and responses should be submitted by 20 July 2023. All the information can be found here.

Charities compliance measures

HMRC has announced a consultation on charities tax compliance. Its declared intention is to explore with the charity sector “reasonable and proportionate” changes on how to reform some tax relief rules that do not work as intended. HMRC states that its purpose is help tackle non-compliance and protect the integrity of the sector and gives an assurance that any resulting changes “would not detract from the overall generosity of the reliefs or be intended to catch out legitimate charities”. The following areas are being reviewed as part of the consultation:

• preventing donors from obtaining a financial benefit from their donation, and the operation of the Tainted Charity Donation rules;
• preventing abuse of the charitable investment rules;
• closing a gap in non-charitable expenditure rules; and
• sanctioning charities that do not meet their filing and payment obligations.

On the last point, HMRC suggests withholding claims to reliefs until errant trustees submit a return and seeks views on the circumstances where this should apply, while conceding that any change would need to be carefully targeted at cases where withholding was the appropriate response.

On that, we would urge caution. While we fully understand HMRC’s concerns, there is a danger that it would not be the trustees of the non-compliant charity that would suffer (except, possibly, embarrassment), but the charity’s beneficiaries.

This consultation closes at on 20 July 2023.

There is also a broad commitment to improving HMRC guidance and forms. This may be the first evidence of how the Government intends to take forward the work of the Office of Tax Simplification via internal channels.