Charities call for Gift Aid Emergency Relief

A coalition of leading voices in the UK charity sector, including CTG, has called on the Government to temporarily increase the level of Gift Aid that can be claimed on donations.

Briefing – Gift Aid Emergency Relief Package

The move to boost the Gift Aid charities receive from eligible donations comes as charities of all sizes face a crisis to their income caused by the Covid-19 pandemic. The latest sector research shows that charities are on average having to plan for a 24% loss to their total income for the year ahead.

The change would mean that a £100 donation from a UK taxpayer would increase to £133.33 for the charity once Gift Aid had been claimed. This compares to £125.00 as is currently be the case.  As a result, the Gift Aid claimed on every eligible donation would increase by one-third, up from the current one-quarter.

The coalition is being led by CAF, IoF, CFG, CTG and NCVO and includes support from a wide range of charities such as Cancer Research UK and the National Deaf Children’s Society to smaller organisations such as Shropshire Cat Rescue. The group have called for the increase to be in place for two years while charities work to recover from the crisis.

The coalition estimates that this move could help charities to access an additional £450 million of much needed cash. It also includes changes to the Gift Aid Small Donations Scheme to ensure it benefits all.

John Hemming, Charity Tax Group (CTG) Chairman, commented: “The Gift Aid Emergency Relief proposals will help charities when they need it most. We know that they are realistic, have worked before and will encourage donors to be even more generous.”

Full details including quotes from CTG’s partners in this coalition can be read here on the #NeverMoreNeeded website. You can support the campaign on social media using the hashtags #GiftAidRelief and #NeverMoreNeeded and following the @CharityTaxGroup feed.

Gift Aid Emergency Relief Package

The charity sector is in the middle of the biggest financial crisis it has ever faced. Huge falls in income, increased levels of demand for services, needing to do more to respond to Covid19 and care for the most at-risk and marginalised individuals and communities has created a perfect storm. Charities can and are doing more, but without appropriate support many will have to close, or severely reduce their services over the coming months. The initial £750m charity support package, and furlough scheme, will help some charities, but the gap between support provided and the need is vast.

Work is ongoing between charities and HMRC to improve eligible Gift Aid take-up and ensure that Gift Aid is fit for the future, harnessing the opportunities that digital payments and technology can offer, while reducing ineligible claims. However, immediate support for the sector is required due to Covid-19 and the Gift Aid scheme provides a simple way to achieve this. A Gift Aid Emergency Relief Package can go some way to keeping charity services running and enable many charities to get through the crisis who otherwise would have to shut their doors.

What is the Gift Aid Emergency Relief Package?

The package has two elements:

  1. The introduction of Gift Aid Emergency Relief (modelled on the previous successful Gift Aid Transitional Relief scheme (in Sch 19, Finance Act 2008)). This would get much needed funds to charities across the country by temporarily changing the way that Gift Aid is calculated. The proposal is for this to take effect from the beginning of the 2020-21 tax year and stay in place for two full tax years. By making use of the existing Gift Aid claiming processes that charities already have in place with HMRC this can happen quickly and easily getting cash to charities as effectively as possible.
  2. Changes to Gift Aid Small Donations Scheme (GASDS) to remove barriers for entry to ensure wider access across the full charity sector; and increase the amount that can be claimed.

How much would this cost?

Gift Aid claimed by charities was worth £1.35bn in 2018-19. If the effective tax rate at which Gift Aid was paid increased to 25%, this level of donations (£5.41bn) would secure an additional £450m to support the work of charities*. However, due to COVID-19, it would seem likely that charities will see a fall in donations on which they can claim Gift Aid. If, for example, the level of donations fell by 20%, as some charities are predicting, then the measure would then only cost £360m. This is less than the net amount of eligible Gift Aid that has previously gone unclaimed each year.

* To calculate Gift Aid, the net value of the donation is grossed up in line with the basic rate of income tax (20%) [the effective tax rate]. For example, on a net donation of £100 the charity can claim £25 of Gift Aid. The gross value of the gift is therefore £125.

Under the Gift Aid Emergency Relief proposal, if it operated in a similar way to Transitional Relief introduced in 2008, the effective tax rate in the calculation would increase from 20% to 25%. For example, on a net donation of £100 the charity could claim £33.33 of Gift Aid. The gross value of the gift would therefore be £133.33.

The basic tax claimed would stay the same and the difference would be the Emergency Gift Aid Relief. 

Realising the principle of Gift Aid for the first time

There is a long-established principle that donations to charities should not be taxed and this underpins the Gift Aid relief. However, estimates from the National Audit Office indicate that approximately £560m of eligible Gift Aid is not claimed each year – money that could be directly funding charity services. Taking into account that it is estimated that £180m is also claimed each year where it should not be, in net terms charities are losing out on potential Gift Aid claims of £380m each year. This is broadly similar to the amount this temporary Gift Aid Emergency Relief would cost the Government, given donation income is estimated to reduce**. Adjusting the Gift Aid mechanism temporarily would help compensate for this longstanding shortfall, at a time of great need, while charity donations stabilise and longer term measures to automate and maximise Gift Aid are progressed.

** Charities who responded to a recent sector survey said they expect to see their income reduce on average 24% lower than previously forecasted. Voluntary income (Income from Regular giving by individuals (e.g, direct debits), Individual giving (cash donations across all channels including text, online, public collections etc), Major donors/ philanthropy, and Corporate donations, on average is expected to fall by 42% per charity based on revised projections.

Key benefits from this change

  • It is a ‘fundraising’ boost for charities which will help to leverage additional giving. Every donation will be worth more to the charity. Government can demonstrate its support for individual giving across the UK, by match-funding this boost to all charity donations eligible for Gift Aid.
  • Being identical to Gift Aid Transitional Relief, this mechanism is tried and tested and there is evidence it works.
  • It can be introduced quickly and will respond to the urgency of need that we see right now across the sector.
  • There is no increased risk of fraud as claims will be monitored by HMRC in the usual way. Vital public funds will be protected.
  • There will be little increase in administration for HMRC or for charities. Additional costs will be minimal.

Support for small charities through a revised GASDS

We are mindful that not all charities will benefit to the same extent from Gift Aid Emergency Relief. We therefore also propose that the Gift Aid Small Donations Scheme (GASDS) is amended to ensure that all small charities can access the scheme, including community-led organisations, which are typically smaller and underfunded, and less likely to make use of Gift Aid. Our suggestions for reform are:

  • To remove the ‘matching rule’, so that the amount of GASDS top-up smaller charities can claim does not depend on the amount of Gift Aid that they have claimed in that tax year. This would remove an administrative burden for many smaller charities that limits them from accessing GASDS at present. The existing checking requirements, including that charities need to demonstrate that two people have counted the money, and the relevant proof that is required when money is banked, amongst others, would provide a sufficient audit trail to guard against potential fraud. Charities would also need to be registered with HMRC to make a claim and once in the system could be provided with resources and information to help them claim Gift Aid where appropriate.
  • To increase the eligible donations that can be claimed under GASDS from £8k to £10k on a permanent basis, to reflect the periodic uprating of the Scheme and to help increase the current value of the scheme (£40m), which is lower than original Government estimates.
  • To adopt the same temporary effective tax rate for GASDS as proposed for Gift Aid Emergency Relief. Overall, the cost to the Exchequer would be minimal, but this could provide a much needed lifeline for smaller charities in financial difficulty due to Covid-19.

Ensure every charity can benefit from the changes

The introduction of this emergency relief package would also be an opportunity to ensure that all charities across the sector are able to access the schemes and benefit from these changes, including those broad cross-section of organisations who work with diverse communities and individuals. We will work together across the sector to help charities use Gift Aid and GASDS – we know that this has been a priority for the Treasury and would be happy to work collaboratively on future outreach work, including through Gift Aid Awareness Day.

Support from across the sector

This campaign has support from across the sector, from both larger and smaller charities. Comments from some of our supporters are outlined below:

  • Sarah Woolnough, Executive Director for Policy and Information at Cancer Research UK said: “The impact of COVID-19 on Cancer Research UK has been significant, and we now expect to see a £150 million drop in fundraising income this year. We’re not alone – charities across the country are struggling, and that’s why Gift Aid Emergency Relief is so important. This scheme would make each donation we receive worth even more, allowing our supporters to help protect our lifesaving cancer research in the future without it costing them more. It would also be a welcome sign of support from Government for charities of all sizes and causes as many work hard on the frontlines of our national response to COVID-19.”
  • Joe Jenkins, Director of Engagement and Income at The Children’s Society, said: “The coronavirus lockdown has hit charities like ours hard, with income from shops and supporter events nosediving just when vulnerable children need our help more than ever…This simple change to the rate of Gift Aid would have far-reaching benefits for The Children’s Society. It would encourage more supporters to donate by increasing the value of their gifts and enabling us to maintain and extend vital help for children such as those who have been sexually or criminally exploited, those struggling with mental-ill health and young refugees.”
  • Meredith Niles, Executive Director of Fundraising and Engagement at Marie Curie said: “The coronavirus pandemic has had a devastating impact on Marie Curie’s finances, with many of our usual fundraising channels (public collections, events, our charity shops) simultaneously closed at a time when our services are needed more than ever. A temporary increase in the level of Gift Aid we could claim on donations would make a real difference, enabling our donors’ contributions to go that much further in a way that is efficient for both us and the Government”.
  • Mike Wade Director of Fundraising and Communications at National Deaf Children’s Society said: “With our fundraising decimated as a result of the Coronavirus, this simple change to Gift Aid could make the world of difference for deaf children. In the next year alone it could give us an extra £1.3m to help make sure deaf children get the education they need despite the huge disruption. It could help tackle the mental health challenges and chronic levels of isolation and loneliness so many deaf children are facing. For tens of thousands of kids growing up across the country, this support would be priceless.”
  • Margaret Lloyd, Trustee and Gift Aid Officer, Shropshire Cat Rescue said: “We are a small local charity, managed exclusively by volunteers and reliant on income from our charity shop and social fundraising events. We have been ineligible for many of the Government grants, so Gift Aid income will be essential to stabilise our budget when the shop re-opens and fundraising events can resume. We are therefore very supportive of the proposal to temporarily increase the value of Gift Aid, which will be a great help for small charities.
  • Lynda Giller, Trustee/Treasurer at Powys Animal Welfare said: “We run three charity shops to fund our animal rescue service. Through these shops we claim Gift Aid on the sales of donated goods and claim under the Gift Aid Small Donation Scheme on small donations through collection tins. Being able to claim back a higher percentage of Gift Aid for a temporary period would certainly help to mitigate the deficit which would be a considerable help in us being able to continue to provide an Animal Welfare service in mid-Wales”.
  • Anna Fowlie, Chief Executive at SCVO said: “The pandemic has impacted on a complex range of funding sources for the voluntary sector in Scotland: fundraising; trading; comtracts; grants and use of reserves. The response to this financial crisis needs to take account of that complexity in bringing in a range of different actors and actions to help the sector to be financially resilient and sustainable. As part of our wide-ranging work to urge a variety of funders to consider how they might best support the sector now and in the future, SCVO are pleased to support the call today on the Westminster government to make amendments to the Gift Aid scheme to bring additional monies into the sector and widen the reach of that scheme.”

To add your support to the campaign please include a quote below, including your name and organisation.