OTS report highlights the importance of HMRC working with the charity sector to use third party data to maximise Gift Aid claims

The Office of Tax Simplification (OTS) has published a report following its recent call for evidence reviewing ways to make tax easier for people through smarter use of third party data.  Following a meeting with OTS officials during the consultation period, CTG developed a response to the consultation in conjunction with the Future of Gift Aid project group, which it leads.

The report concludes that making mandatory automated reporting an impractical solution to the under-reporting of Gift Aid donations. However, it notes that there is still scope to improve the taxpayer experience by facilitating voluntary third party reporting of Gift Aid data. It recognises the work HMRC is doing with the Charity Tax Group and its Future of Gift Aid project to explore how it might interface with private organisations, such as Swiftaid, that automate Gift Aid claims for registered charities and donors.

CTG welcomes the OTS suggestion that the automated reporting of Gift Aid donations should not be mandated but that HMRC should continue to work with the charity sector to develop better automated systems operating on a voluntary basis. CTG’s response to the call for evidence welcomed the sharing of third party data and use of intermediaries, but noted that any changes must be staggered and recognise the practical realities of many small, often volunteer-led charities, which are currently ill-equipped to submit large volumes of donor data to HMRC.

It is pleasing that the OTS has recognised the value of the Future of Gift Aid project and the active involvement of HMRC in this process. The progress we have made to date has been very promising but if Gift Aid is to be truly fit for the digital future there will need to be minor legislative changes to facilitate this. Embracing innovation and the benefits of technology can be a game-changer in terms of reducing Gift Aid error but also ensuring that Gift Aid is not currently claimed can be accessed by charities. The project benefits from active involvement from across the charity, advisory and intermediary sectors and we look forward to ongoing engagement with the OTS and HMRC to make this a reality.

OTS report – overview

The OTS report makes 9 recommendations, including encouraging the Government to:

  • ensure that data reported to HMRC by third parties is visible to taxpayers and their agents through the Single Customer Account and used to update tax codes and support the completion of individuals’ tax returns
  • set out a clear roadmap of the stages through which changes would be consulted on and made
  • consult widely on the balance of responsibilities as between data providers, software providers, agents, taxpayers and HMRC, and the extent to which it would be reasonable for taxpayers to rely on the data provided
  • explore how best to enable taxpayers to see and validate data matched to their account, and to provide an appropriate mechanism for them to query or amend the data

The report notes that in respect of Gift Aid donations to charities, if HMRC already had the data needed, they could prompt claims or automatically give any appropriate relief, subject to any legislative changes needed to facilitate this.

The report also highlights that the HMRC innovation team is conducting a ‘proof of concept’ pilot schemes with the charities sector, with the aim of automating Gift Aid. This project is a collaboration between the charities sector, private sector and HMRC with the aim of automating the Gift Aid process, to reduce the £180 million claimed in error and the £564 million that is unclaimed every year. The project is hoping to demonstrate the ability, through an API, for HMRC to be able to use an individual’s tax status to determine where a declaration isn’t valid (because the donor hasn’t paid enough tax in the year to be able to cover the Gift Aid claimed). It also hopes to extend to other types of donation, like SMS donations and retail (charity shop) donations, and to greater explore how they utilise opportunities within the banking system.

The report notes that that there is underclaiming of higher rate relief for gift aided charity contributions, recognising that if the information needed to make the claim was quickly and readily available to the taxpayer when completing their return, this could increase the number of people making claims for the relief that they are entitled to.