As Gift Aid approaches its 30-year anniversary, HMRC is asking charities to raise awareness among fundraisers about what is covered under the scheme amid concerns that £1m may be being wrongly paid out every month.
Gift Aid on donations by individuals to charities is worth around £1.3bn to the charity sector annually, with around £0.5bn being claimed in higher rate tax relief by donors. This means that Gift Aid is costing the Treasury the best part of £2bn each year.
Yet even after 30 years, the precise rules and requirements around Gift Aid are not well understood by donors (and, it has to be said, some charities).
There seems to be a common misconception that just because an individual is a UK taxpayer, any cash they pass over to a charity will automatically be eligible for Gift Aid, enabling the charity to reclaim an extra 25 per cent from HMRC. This is not necessarily the case.
Take an example of a fundraiser, who is a UK taxpayer, who collects money on behalf of a charity from office colleagues over a two-month period. He pays all of the money into his own bank account and then pays it over to the charity online using his own debit card. When donating online he ticks the box to confirm that he is a UK tax payer and completes the Gift Aid declaration accordingly. The charity then claims the Gift Aid from HMRC.
But the Gift Aid declaration should not have been completed, as no Gift Aid is actually due to the charity. The fundraiser is not donating his own money – he is simply passing on donations he has collected from others on the charity’s behalf.
Similarly, cash received from a cake sale is not eligible for Gift Aid – the cash represents proceeds from the sale of cakes, not donations that are freely given with nothing being received by the donor in return.
HMRC estimates that issues such as this are resulting in up to £1m in Gift Aid being paid out every month, when no Gift Aid was actually due.
To help alleviate this problem, charities are being asked by HMRC to provide more information and guidance to their fundraisers. In particular, charities are being encouraged to ask their fundraisers to confirm the following three statements before making a donation under Gift Aid, in addition to providing the usual Gift Aid declaration:
1. I am donating my own money, and the funds have not come from anyone else including family members or from an office or bucket collection;
2. the money I am donating is not the proceeds from sales of goods or services or the sale of ticket; and
3. I have not received something in return for this donation such as an entry ticket to an event or a raffle ticket.
We would hope that charities will respond positively to this ‘call to action’ from HMRC. Gift Aid is a great British institution – it’s by no means perfect but it is something we can justifiably be proud of. It is really important – for charities and donors alike - that its integrity is maintained.