Clause
59
Gift
aid:
limits
Question
proposed, That the clause stand part of the
Bill.
Mr.
Francois:
I welcome you to the Chair this morning,
Mr. Illsley. Last year, we discussed in some detail the
application of gift aid to museums and properties that give to their
supporters free or discounted access to their facilities. This year, we
find ourselves discussing the application of gift aid to charities that
give their donors other benefits in recognition of their
support.
Gift aid was
introduced by the then Chancellor John Major in his 1990 Budget to
encourage gifts to charities. It has been successful. According to a
recent written answer from the Secretary, Cabinet Office, the hon.
Member for Doncaster, North (Edward Miliband), it is worth £750
million per annum to the approximately 300,000 charities in the United
Kingdom. The clause is designed further to encourage charitable giving
by allowing charities to increase the benefits that they give to their
supporters while remaining in the gift aid scheme.
HMRC’s guidance on gift
aid includes the following
explanation:
“A
benefit is: any item or service provided by the charity or a third
party to the donor or a person connected with the donor in consequence
of making of the
donation.”
The guidance
goes on to give generic examples of a theatrical charity giving its
supporters a ticket discount, and a medical charity giving its
supporters a magazine, a pen and even a dinner for two. In essence,
those charities wish to give to their supporters incentives to continue
their support. Under clause 59(1)(a), the allowed fringe benefit to the
donor as a result of his gift to charity will increase from 2.5 per
cent. to 5 per cent. of the value of the donation. That will mean that
someone who gives £10,000 will be able to receive a £500
incentive, instead of the original £250, without jeopardising
gift aid status.
In
its reaction to the Budget, the law firm Harbottle and Lewis
explained:
“It
is often difficult to quantify a benefit received by a donor from a
charity so the increased limit will give charities more room for
manoeuvre without jeopardising the availability of Gift
Aid.”
Clearly, we welcome that. The Chartered
Institute of Taxation has also welcomed the changes. According to its
evaluation, they might be of particular help to amateur sports clubs.
It has a query about thresholds, however, which I should like to raise
with the Economic Secretary. The institute has highlighted the fact
that although the upper limit has been extended, that extension applies
only to those who donate £1,000 or more a year. For donations
below £1,000, the limit remains at 2.5 per cent. As the
CIOT has pointed
out:
“It seems
strange that only some of the limits, originally set in 1990, have been
altered, and that smaller donors are still subject to 1990 values. The
effect of the proposed change will be to allow a donor who makes a
donation of £1,001 to receive a benefit of £50.05 yet a
donor who makes a donation of £1,000 may only receive a benefit
of £25.”
That
seems strange indeed. That bias against small donors seems to echo the
bias against small companies in the Budget. I should therefore be
interested to hear the Economic Secretary’s rationale for the
decision to raise the higher bracket but leave the basic threshold
unchanged.
There is
also a practical point on the operation of gift aid. The Royal
Aeronautical Society has written to me with a suggestion. The letter
came from its chief executive, Keith Mans. As I am sure you will
recall, Mr. Illsley, he is also a former Member of this
place. His letter highlights the problem of gift aid donations as they
relate to second-hand goods and charity shops. To summarise the problem
succinctly, if an individual donates a gift to a charity shop, the
charity can claim gift aid on the article only after it has been sold
and after it has subsequently contacted the donor to ask if the donor
is happy for gift aid to
apply.
9.15
am
Mr.
Mans
comments:
“In
practice, of course, it is almost impossible to do this as it would
mean that when any article is sold the donor has to be
contacted.”
His
suggested solution is quite straightforward. He
says:
“My
suggestion is this rule is modified so that there is a presumption at
the time the goods are donated (provided that at that point the donor
signs a gift aid form) that when the goods are sold the donor wishes
the proceeds of the sale to remain with the charity and not to be
returned to the
donor.
This would mean
in practice that, provided an inventory is kept by the Charity Shop of
the names of the donors and the goods they have donated, it would be a
simple matter when articles are sold, for gift aid to be claimed
back.
In my view, this
does not constitute a change in the law but is simply a
re-interpretation of the rules, to ensure that the original intention
of the Treasury to allow the recovery of gift aid, on articles
donated to Charities, can be done in a practical
way.”
I look forward to
hearing the Minister’s response to that suggestion in his
winding-up remarks.
Julia
Goldsworthy (Falmouth and Camborne) (LD): I very much
sympathise with the hon. Gentleman’s argument. Is it not the
case, however, that people who make charitable donations must
record those
donations in their tax returns? Consent might be given in the charity
shop, but there must still be a way of informing individuals so that
they can include the relevant information in their tax
returns.
Mr.
Francois:
I take the hon. Lady’s point. It would
depend on whether the individual was determined to include the
information in their tax return at year end. I suspect that in most
cases they would not necessarily be highly motivated to do that, but
that they would be more concerned that the charity should get the gift
aid. The suggestion is a practical one that comes from another source
and I hope that the Minister will consider it. The hon. Lady is
technically correct, but the Government might want to consider the
proposal from the practical point of
view.
Finally, Budget
changes to the gift aid rules might have a further effect on charities
that the clause will go only a little way to addressing. There has now
been wide press comment that buried in the detail of the Budget is a
likely knock-on effect whereby the Chancellor’s proposed changes
in the basic rate of income tax will cost charities up to £70
million. There has been such concern in the charitable sector about the
possible effect that eight heads of major charities wrote to The
Times on 23 March to express their concern. The letter
said:
“Sir,
Gordon Brown’s tax cuts will mean that UK charities are likely
to lose more than £70 million in income.
Under the Government’s
Gift Aid scheme, charities can reclaim the tax paid on donations by UK
taxpayers. With the reduction in the basic rate of tax from 22 to 20
per cent., Gift Aid income will be reduced by more than 10 per cent. We
urge the Government to consider compensating charities for this
significant reduction in
income.”
I shall not read
out all the signatures, but they included those of Professor Alex
Markham, the chief executive of Cancer Research UK, Kevin Cahill, the
chief executive of Comic Relief, and Keith Hickey, the chief executive
of the Charities Finance Directors Group.
The challenge
for charities is compounded by the pressure on lottery funding on which
many charities now rely, and by the additional £675 million of
lottery money that was recently reallocated by the Government to the
financing of the 2012 Olympics on top of the £750 million that
the lottery was already providing for that event. That money will no
longer be available to charitable good causes, which will result in
further intensification of the pressure on charities in the United
Kingdom.
The clause is
a welcome move to amend the gift aid rules to allow donors to receive
greater fringe benefits from supporting charities, while still
remaining in the gift aid scheme. To that extent, we support it.
However, in discussing gift aid I should like to press the Minister on
three points.
First,
what is the Minister’s view on the Chartered Institute of
Taxation’s point about thresholds and why were those for more
wealthy donations increased while the others were left unchanged?
Secondly, would he at least think about the practical point in relation
to gift aid and charity shops and does he have any initial view on it?
I say this without irony: if he wants to consider that, he can write to
me about it. Thirdly, given the potential double whammy that charities
will suffer
from the reallocation of lottery funding to the Olympics and from
changes in the basic rate of income tax, what further measures, if any,
are the Government considering to the gift aid regime to account for
that?
Julia
Goldsworthy:
I do not intend to repeat the arguments that
the hon. Gentleman has just made. I shall simply add my welcome to the
extension of the benefits to community amateur sports clubs. I can
think of many examples of clubs in my constituency that will benefit
hugely from that. I have only one question. Is anything being done to
make sure that such sports clubs are aware of their new entitlement?
The people whom I have in mind will not necessarily be paying
particularly close attention to the proceedings of this
Bill.
I should also
like to reiterate briefly the comments that have been made about the
asymmetry of treatment between larger and smaller donors. Is that an
intentional change? Some comments on that would be welcome. There are
also concerns more widely about gift aid and how vulnerable it is to
changes in the income tax system and other changes more generally.
Representatives from a museum came to me last year because they were
concerned about some gift aid forms that they had produced to try to
maximise their benefit. Because they had not required visitors to give
their postcode, however, the forms were invalid and they could not
claim gift aid. That represented a huge loss of expected
income.
Gift aid is a
complicated system. I am therefore concerned that, as was reflected in
the exchange between my hon. Friend the Member for Romsey (Sandra
Gidley) and the Secretary, Cabinet Office, the hon. Member for
Doncaster, North (Edward Miliband), £70 million of income will
be lost overall when the income tax changes kick in next year. That
highlights how vulnerable charities are to changes on the periphery
that can have a major impact on their income. Perhaps it is time for
the Treasury to look again at the gift aid system to see whether it can
be insulated against such changes, and whether a system can be created
that is clear, well defined and not subject to the changes and
uncertainty in the years
ahead.
Ed
Balls:
As hon. Members have said, the clause will increase
the limits on the value of benefits that can be received by individuals
and corporations who make qualifying donations to charity. The
adjustments will increase the cap on the benefits that donors can
receive in a year in response to gift aid donations from £250 to
£500. In addition, the percentage limit for benefits received in
return for donations over £1,000 will be increased from 2.5 per
cent. to 5 per cent. Those benefit limits allow charities to build
sustained relationships with donors by offering them a gesture of
recognition.
The
limits have been unchanged since the introduction of gift aid in 1990
and we believe that the changes in the Bill will help to encourage
increased philanthropy, as appropriate levels of benefits can increase
scope for institutions to build up lasting relationships with donors.
As the hon. Member for Falmouth and Camborne highlighted, for the
purpose of gift aid donations by individuals, community amateur sports
clubs are treated as charities and so will also benefit from the
increase in benefit limits.
As the hon. Member for Rayleigh
said, reaction to this change has been positive. He asked me three
questions. First, he asked why we were only increasing the threshold
limit for larger donations. As he said, these changes have been
welcomed by the Chartered Institute of Taxation and the London Society
of Chartered Accountants. The benefit limits have not been increased
since 1990. It was sensible to review them. For larger donations, we
understand that the current limits constrain charities when making
gestures of recognition to reflect the scale of donation. That
therefore restricts their ability to deal with and develop
relationships with large donors.
We feel that the existing
limits for smaller donations are already generous. For example, if a
donor makes a gift of up to £100, a charity may thank them with
items or services worth up to £25, which in that case would be
25 per cent., rather than 2.5 per cent. The changes were specifically
intended to increase scope for charities to recognise larger donations
and develop relations with their wealthy donors. It was in that area,
rather than on smaller donations, that we perceived there to be a
problem. That is why we have acted in this way, but if the sector makes
further representations, we can consider those in due course. The
representations that were made concerned larger donations.
On the second point, the
representation from the Royal Aeronautical Society and the former
Member of this House, Mr. Keith Mans, I am happy to commit
the Treasury to consider the matter. I cannot give the hon. Member for
Rayleigh an answer today. It is not an issue on which he has tabled an
amendment. On this occasion, I had no advance notice of the detailed
point, so I am not in a position to respond to it outside the scope of
the clause. I will, however, examine the matter. We will be happy to
meet Mr. Mans—on the ground rather than in the
sky—and I will happily commit the Treasury to writing to the
hon. Gentleman about the matter, and to meeting Mr.
Mans.
On the point
that the hon. Member for Falmouth and Camborne raised in passing about
awareness, we have explicitly flagged the extra benefit limits to the
Community Amateur Sports Clubs forum as well as the Central Council for
Physical Recreation. We will endeavour to ensure the widest
awareness.
That
brings me on to the third point about the impact of Budget changes.
When we make changes to the tax system, they have an impact more
widely. Those impacts are considered in making Budget decisions. At the
same time, however, we always work with the sector to try to ensure
that we increase awareness and opportunity. Although the amount of gift
aid repayable to charities is affected by the change to the basic rate
of tax, we believe that there is significant scope for the charitable
sector to increase the proportion of donations that enjoy gift aid tax
relief.
The Charities
Aid Foundation has stated that an additional £700 million of
gift aid tax relief could potentially be claimed. The consultation that
we announced in the Budget is aimed at trying to find particular ways
to raise awareness and to change the regulations so that we can
increase the amount of charitable giving that benefits from the tax
relief. We hope that in the coming years, the strong upward trend in
donations will continue, and the upward trend in donations receiving
tax relief will continue. I remind
the Committee that in 1996-97, the amount of basic rate gift aid to
charities was £134 million. By 1998-99 that had risen to
£306 million. By 2005-06, the amount had risen to £750
million. There has been a substantial rise in the amount of tax relief
for gift aid, but this is one of those occasions on which the Treasury
would like the cost to the Exchequer to go up, not down.
Question put and agreed
to.
Clause
59 ordered to stand part of the Bill.
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