Small Charitable Donations Bill

The Committee consisted of the following Members:

Chairs: John Robertson  , Mr Andrew Turner 

Baldry, Sir Tony (Banbury)  

Bruce, Fiona (Congleton) (Con) 

Durkan, Mark (Foyle) (SDLP) 

Gilmore, Sheila (Edinburgh East) (Lab) 

Glass, Pat (North West Durham) (Lab) 

Hands, Greg (Chelsea and Fulham) (Con) 

Hemming, John (Birmingham, Yardley) (LD) 

Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op) 

Javid, Sajid (Economic Secretary to the Treasury)  

Jones, Susan Elan (Clwyd South) (Lab) 

Lefroy, Jeremy (Stafford) (Con) 

Macleod, Mary (Brentford and Isleworth) (Con) 

Mills, Nigel (Amber Valley) (Con) 

Mordaunt, Penny (Portsmouth North) (Con) 

Mowat, David (Warrington South) (Con) 

Mudie, Mr George (Leeds East) (Lab) 

O'Donnell, Fiona (East Lothian) (Lab) 

Thomas, Mr Gareth (Harrow West) (Lab/Co-op) 

Williams, Stephen (Bristol West) (LD) 

Alison Groves, Steven Mark, Committee Clerks

† attended the Committee


Jeremy Jacobs, Chief Executive, United Synagogue

Kevin Russell, Technical Director, Stewardship

John Preston, National Stewardship and Resources Officer, Church of England

Charlotte Ravenscroft, Policy Manager, National Council for Voluntary Organisations

Helen Donoghue, Director, Charity Tax Group

Cath Lee, Chief Executive, Small Charities Coalition

John Hodge, Member of the Law Society Scotland Charity Law Committee

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Public Bill Committee 

Tuesday 16 October 2012  


[John Robertson in the Chair] 

Small Charitable Donations Bill

8.55 am 

The Chair:  Before we begin, I have a few preliminary announcements. Members may, if they wish, remove their jackets during the Committee’s sittings. Will all Members please ensure that their phones and pagers are turned off or switched to silent mode during these meetings? 

As a general rule, my fellow Chair and I do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period for Public Bill Committees is three working days. Therefore, amendments should be tabled by the rise of the House on a Monday for consideration on a Thursday, and by the rise of the House on a Thursday for consideration on a Tuesday. Please note that the House is now expected to rise at 5.30 pm on Thursdays. 

For those members of the Committee who are less familiar with the process of taking oral evidence in Public Bill Committees, it may be helpful if I explain briefly how we will proceed. First, the Committee will be asked to consider the programme motion, debate on which is limited to half an hour. We will then consider a motion to report written evidence, followed by a motion to permit the Committee to deliberate in private before taking oral evidence, and I hope that we can take those motions formally. Assuming that the three motions are agreed to, the Committee will move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and the oral evidence will begin. If the Committee agrees to the programme motion, we will hear oral evidence this morning. 

Sir Tony Baldry (Banbury) (Con):  On a point of order, Mr Robertson. As hon. Members may know, I am Second Church Estates Commissioner, so I have a particular interest in the well-being of the Church of England. It will benefit considerably from the Bill, but I do not want to have to explain that I am the Second Church Estates Commissioner every time I speak in Committee. I hope that declaring that interest at the start will suffice for the duration of our proceedings. 

The Chair:  I thank the hon. Gentleman for that, and I am quite happy, if everybody else is, for that to be the case. 



(1) the Committee shall (in addition to its first meeting at 8.55 am on Tuesday 16 October) meet—

(a) at 2.00 pm on Tuesday 16 October;

(b) at 11.30 am and 2.00 pm on Thursday 18 October;

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(c) at 8.55 am and 2.00 pm on Tuesday 23 October;

(d) at 11.30 am and 2.00 pm on Thursday 25 October;

(e) at 8.55 am and 2.00 pm on Tuesday 30 October;

(2) the Committee shall hear oral evidence on Tuesday 16 October in accordance with the following Table:




Until no later than 10.00 am 

The United Synagogue; Stewardship; The Church of England 

Until no later than 11.00 am 

National Council for Voluntary Organisations; Charity Tax Group; Small Charities Coalition 

Until no later than 11.25 am 

The Law Society of Scotland 

Until no later than 3.00 pm 

Royal National Lifeboat Institution; WaveLength; National Trust 

Until no later than 4.00 pm 

Charities Aid Foundation; Charity Finance Group; Institute of Fundraising 

Until no later than 4.45 pm 

HM Treasury; HM Revenue and Customs 

(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 3; the Schedule; Clauses 4 to 21; new Clauses; new Schedules; remaining proceedings on the Bill.

(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 8.00 pm on Tuesday 30 October. —( Sajid Javid.)

Resolve d,  

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Sajid Javid.)  


That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Sajid Javid.)  

8.59 am 

The Committee deliberated in private.  

Examination of Witnesses

Jeremy Jacobs, Kevin Russell and John Preston gave evidence.  

9.2 am 

Q 1 The Chair:  We will now hear evidence from representatives of the United Synagogue, Stewardship and the Church of England. Will you please introduce yourselves to the Committee for the record? 

Jeremy Jacobs: I am Jeremy Jacobs, and I am the chief executive of the United Synagogue. 

Kevin Russell: I am Kevin Russell, technical director of the charity Stewardship. 

John Preston: I am John Preston, national stewardship officer for the Church of England. 

The Chair:  Thank you for coming. Before we take the first question, I remind all Members that questions should be limited to matters within the scope of the Bill and that we must stick strictly to the timings in the programme order that the Committee has agreed. I do not want to interrupt Members or witnesses mid-sentence, but if I need to do so, I will. 

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Q 2 Mr Gareth Thomas (Harrow West) (Lab/Co-op):  Good morning, gentlemen. I direct this question mainly at Mr Jacobs and Mr Preston, although I do not want to preclude you from coming in on it too, Mr Russell. Do any of your member organisations have problems claiming gift aid, or does every synagogue and every Church of England church claim the maximum amount? 

Jeremy Jacobs: We have a pretty good coverage of claims through the United Synagogue. We have approximately 50 synagogues within the United Synagogue, which make up about 11% or 12% of the total synagogues in the UK, and if you include the associated synagogues that come under the authority of the Chief Rabbi, that makes up about another 70 or 80, so we cover about 30% of the community. We get gift aid recovery of about 55% of the total claim that we could make, so we claim over half of what is potentially available. That said, there is a large proportion of people who will not sign a gift aid declaration for reasons that are perfectly legitimate in their eyes. For example, senior citizens find it very difficult to complete forms, and others find it intrusive in terms of Government involvement. Therefore, we find that, however much we try—and we do have a pretty effective system in trying to recover gift aid—many people simply will not sign. 

John Preston: We have about 16,000 churches and 12,500 parishes. Since 2000, when the restriction on the size of gift aid donations was removed, we have worked really hard. Currently, we get about £450 million given through those 16,000 churches. Every parish is a separate charity, and therefore gift aid has to be processed and administered locally. 

The money splits into two. Two thirds of it is regular giving, and we have worked really hard and managed to get gift aid declarations on just under 90% of that. However, the other third is one-off contributions, mainly during services, but also on gift days or other occasions—perhaps also through tourists putting money in a wall safe, or whatever. On average, we would be able to get gift aid on about 27% of that, but that splits into two. On a gift day, when church members might be making a more sizable commitment, they are much more likely to sign for gift aid, but during the classic church collection, where a bag or plate is whizzing along a pew while people are singing hymns, people just find it too difficult and complicated to sign a gift aid declaration. 

We have about 25 million individual donations a year of, say, £2 or less, but we can get gift aid on only about 4% of those. So, although we have worked incredibly hard and got gift aid on about two thirds of our giving in total, and on nearly 90% of regular donations, we have struggled with these one-off, small donations. We have tried putting gift aid envelopes on pews, we have tried putting pens on pews and we have tried giving people time before services, but we have just found it really, really hard. 

Jeremy Jacobs: May I make a further point that comes to mind from that? One thing that the Jewish community has particular trouble with is that the majority of occasions when people attend synagogue are on a Sabbath or a festival, and in the Orthodox community, you cannot sign anything. Therefore, to be able to follow that particular route is, frankly, impossible. 

Kevin Russell: May I comment on the non-conformist side of the church? We represent cross-denominations, but perhaps the non-conformist side is missing from the

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responses given so far. The gift aid take-up can be quite variable, from well organised churches where it may reach 70% of gift-aidable income, to other churches—particularly some of the ethnic minority churches—where it would be much, much lower. So far as we can ascertain, that is down to a general feeling of people not wanting to get involved with Her Majesty’s Revenue and Customs, or with any form of government or authority. 

Q 3 Mr Thomas:  How would you amend the Bill to make it better, if you could? That question is for all three of you. 

Kevin Russell: Personally, I think that the key areas we would like to see focus on are the matching provisions, the three-year registration period, and, perhaps to a lesser extent, the need for successful gift aid claims in three years out of the last seven. There are other points that are perhaps less major. 

Jeremy Jacobs: From my perspective, the worry I have is about the bureaucracy that could, theoretically, flow from this, and the potential over-zealousness of an HMRC inspection. We realise that the £20 cap is there for a reason; I am not convinced that it is a good reason. Personally, bearing it in mind that the impact on HMRC is limited to tax on £5,000, I do not really appreciate why the cap should be limited to £20. I believe that there is absolutely no reason why it should not be more than that, and it sounds to me as though it will almost be impossible to monitor. 

For example, if we take the church plate, or, in the synagogue, a charitable box which we have during the week—so the cap will impact on us because we will have the potential for a claim—how on earth will we know whether somebody has put in a £20 note and a £10 note? We will not know. Will HMRC put in restrictions to say, “Have you systems in place?” It will be impossible to monitor. So my first concern is the bureaucracy of it, and the bureaucratic potential to this, for such a relatively small sum. 

The other thing is the question of cash and the fact that it is limited to cash. I find it in many respects astonishing that Government are encouraging people to flow through a black economy kind of environment. It seems to me that that is counter-intuitive, and that actually we should be encouraging people to give money by cheque or credit card, rather than the reverse. 

Q 4 John Hemming (Birmingham, Yardley) (LD):  A basic question: will the burden of administering the scheme be proportionate to the benefits? Will it be a worthwhile exercise, or is it really too much hassle? 

John Preston: For me, that would be my major concern. While I welcome the amendments that the Government have already tabled—we can go into the details of community buildings and connected charities, or whatever—it seems to me that the key for this scheme is to retain sufficient confidence in the safeguards so that the scheme can be easy to administer locally. We already invest about 200,000 hours of volunteer time in administering gift aid. As it currently stands, I think that this scheme will save us some time and money, perhaps by reducing the number of small gift aid envelopes we are getting with £2 in them. However, I would be concerned if too many of the safeguards were taken away such that HMRC felt it necessary to increase the

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administrative procedures for operating the scheme. Thus far, I understand that HMRC has indicated that it would like to keep those as simple as possible, which seems to me to be absolutely vital if the benefit of the scheme is to be proportional to the administration. 

Q 5 John Hemming:  What you are saying is that it is not necessarily stuff in the Bill; it is a question of how HMRC handles it. Referring specifically to the Bill, is there something we can simplify—to make it easier—or is it really just a question of how HMRC takes it? 

John Preston: As I understand it, some of the stuff in the Bill is there to provide the Government and HMRC with the appropriate safeguards that they feel are necessary to be able to operate the light-touch scheme. Yes, it would be lovely to remove any link to gift aid matching, or to remove the size of a minimum donation, but if the price of removing those was an increase in the administrative complexity of the scheme locally, I do not think that my parishes would be too keen. 

Q 6 John Hemming:  So, basically, it might be around the right balance? 

John Preston: I think from our perspective it probably is. 

Kevin Russell: My thought here is that once the scheme is in place and people have experienced it, they will say, “What was all the fuss about?” Yes, the community buildings rules are complex. I see that being dealt with by guidance from HMRC and from the sector, and, within the sector, from the denominations. I understand that HMRC will be willing to review the guidance given from our side to make sure that it is robust. In terms of the actual mechanisms, I would hope—I know that this is not a matter for the Bill itself—that, operationally, if there were a matching rule in the eventual Act, the test of matching would be built into the online claim through a validation process so that charities would not need to worry overly about whether they have claimed the right amount. 

Jeremy Jacobs: From my perspective, I think that the balance is about right. I can understand exactly why HMRC wants to make sure that charities that can claim are legitimate charities, so I support that. My biggest concern, I suspect, is the failure automatically to increase the level of the cap of £5,000. That is therefore at the whim of Government and it could be down, up or never. As time goes on, that will become more and more relevant to charities, and that concerns me. 

John Preston: May I make just one more point to build on Kevin’s contribution? We have already looked at what our guidance would look like for this Bill. Although the Bill is complex, I am confident that the guidance for parishes need not be, such that I think that it can probably fit on one sheet of paper. Some of the complexity of the Bill gets simplified when you start to interpret it for a particular sector. 

Q 7 Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op):  Thank you very much to everyone for coming along this morning and giving evidence. 

May I probe a couple of points in slightly more detail so that I am absolutely clear about your views? I want to probe the point about the matching amounts, because there seems to be a slight nuancing there. In an ideal

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world—correct me if I have misunderstood this—you would not want to see the matching provision, but you recognise that is a price that has to be paid. I would like to understand if I have that correct. 

Kevin Russell: In an ideal world, yes, we would like to see matching dropped from the Bill. Other witnesses might well make the same comment. We recognise that safeguards against fraud are needed and, personally, I am content to live with that. I would like to see an increased ratio. The reason for that is not so much the churches themselves, but church-based community charities—new start charities, for example—which rely predominantly on small cash donations and do not have the gift aid capacity. They are also going to have to wait three years, which is another point entirely. 

I recognise that there is a cost to increasing that ratio, so I wonder whether it is possible to increase the ratio for very small charities. For example, for those that do not have to submit an annual return to the Charity Commission, you could set it at a level of income of £25,000. Yes, that would bring in legislative effort, if not complexity—I recognise that—but I think that that is a price worth paying. 

Q 8 Cathy Jamieson:  May I probe the issue about £20 being the definition of a small cash donation? What is your view on that? Has it been set at the correct level, or should it be different? 

John Preston: For me, £20 or less is a small donation. Once it goes much beyond that, I think it is quite reasonable to expect somebody to take a moment to complete a gift aid declaration, particularly if that person is a higher rate taxpayer and has the opportunity to claim relief. If they are just putting in a small donation and have no audit trail, they lose that supporting evidence. We would not want to move away from gift aid, and regular and committed giving, because that is really important for us, not only as an expression of faith, but as an expression of commitment to charities. We want to encourage other charities to build up a base of regular supporters who are able to sustain the work of the charity over a longer period, rather than relying solely on individual, small moments of generosity. 

Q 9 Ca thy Jamieson:   May I ask a question on a slightly different topic? I think the community buildings rules were mentioned, and I know that the Government have now tabled an amendment. There was criticism at the beginning that the rules were horrifically complicated and very difficult to understand, and that they would need, potentially, far more than a single page of guidance. Do you think that the Government’s amendment answers all those criticisms, or are there other things that the Government could do, or other amendments that could be made to the Bill, to assist? 

John Preston: I am sure it will not answer every possible criticism. For the Church of England, it answers a particular issue about where two plots of land that are owned by the same person are adjacent. If the vicarage happened to be next door to the church, all of a sudden it was not a community building, whereas if the vicarage was over the road, it was. That seemed counter-intuitive. Now, with the amendment, the Bill clarifies that if the community building is distinct, it stands as a community building, which is clearly very helpful. 

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Kevin Russell: I agree that the proposed Government amendments are very helpful, particularly in relation to rent of commercial premises, which was one of the areas that I was particularly concerned about. Another that concerned me was staff, officers and trustees who effectively wear two hats when they are at church—both in their role and as a beneficiary. I would push back on whether the community buildings rules will, in practice, be complex. Provided that the sector guidance—I am thinking of the denominational guidance—is specific to the denomination, that it covers different aspects that apply to the denomination, that it can be condensed down and that it is easy to understand, in layman’s language—this is why I am keen that the sector contributes to it—I think it will work out very well in practice. No church treasurer, or at least very few church treasurers, are going to say, “I need to look at the legislation,” which I accept is very complex. 

John Preston: One more benefit for us with the amendments to the community buildings provision is the removal of the requirement to separate out trustees. Routinely, Sunday by Sunday, in every church, we count how many people we have. The removal of the requirement means that we can use our historical records and we do not have to look round the church and try to identify who is on the PCC to count them in a separate class. It would only affect the very smallest of churches anyway. The vast majority are well over that regularly, but it is another help and simplification. 

Jeremy Jacobs: May I make a point from the United Synagogue perspective? We slightly smiled when we saw the limit of 10 people because, for those of you who know, our services have to have a minyan, which is 10 people, so we wondered whether this was specifically aimed at us, but I am sure it was not. 

Of course, for those communities where they actually struggle to get a minyan, this could become a problem. We were very concerned when the legislation originally talked about volunteers and trustees. That seems to have been resolved, but it nevertheless continues to give us cause for concern because most of our communities’ volunteers often are people who are working for the community. So it was an issue. 

I just wanted to get back to the £20 question you raised because there is obviously a slight difference of opinion here. I am not convinced, by the way, that gift aid is the main reason why people are committed to charities. I think it is an addendum; I believe that one can create a relationship with a charity which is not based upon that. We work very hard to ensure that we provide community services and, if you like, the big society, one nation—all this terminology we are coming across. That is done through a variety of means and gift aid is not one. 

The other point concerns higher rate taxpayers. They have a far greater incentive to engage with the gift aid process than basic rate taxpayers, because they receive back the benefit. So I do not think there is a likelihood that a limit will impact on higher rate taxpayers. That is not to say that they will not bother with the gift aid process; I just do not think that is the case at all. 

Q 10 Sir Tony Baldry:  Mr Preston, you are the national stewardship and resources officer of the Church of England. 

John Preston: That is right. 

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Sir Tony Baldry:  Am I right in thinking that the Church of England strongly welcomes this Bill? 

John Preston: Yes, it does. 

Q 11 Sir Tony Baldry:  Have you made an estimate of how much you think parishes up and down the country are going to benefit by the small donations scheme? 

John Preston: Our estimate is between £13 million and £15 million in total, which of course is a large number of multiples of the £1,250. For me, one of the real strengths of the Bill is that it directs the support to the smallest parishes, where it will make the biggest difference. It is in the smallest communities where small numbers of people are keeping their church going where this will be very helpful. 

Q 12 Sir Tony Baldry:  Given the amendments that the Minister has tabled, are there any further amendments to this Bill that the Church of England is looking for? 

John Preston: As it stands for ourselves, we are now very content. As I said earlier, the important thing for us is that the scheme is able to retain operational simplicity. We recognise that others within the sector may still have some aspirations, but for us, this seems to work very well. 

Q 13 Sir Tony Baldry:  The Church of England is content now with this Bill as it stands, and you consider that it needs no further amendment? 

John Preston: From our perspective, we consider that it needs no further amendment. 

Q 14 Sir Tony Baldry:  The Minister dealt with the question of the definition of community buildings by the amendments he has tabled. Could I ask you about the proposed definition of connected charities? Is that appropriate in your view? Do you have any comments you want to make on connected charities? 

John Preston: For the Church of England, parochial church councils are in a strange position in that they are bodies corporate rather than trusts. Therefore, for us, the definition of connected charities was relatively straightforward. However, we were concerned that individual members could find themselves to be connected with other charities by a single trustee in common. Where charities have taken trust deeds or the equivalent from the Charity Commission website, the purposes will be similar because they will have just taken the same model, and it will be down to local judgment as to whether the activities would be similar. Therefore, we welcome the tightening in the amendment so that the definition of charities that are connected effectively talks about control, rather than happening to have an individual who is a trustee of more than one charity. We greatly welcome that, because it seemed to us almost impossible to trace individual trustees; especially where, if A and B are connected and B and C are connected, then A and C are connected, which requires B to report back to A and C. This is particularly the case for charities which are excepted, such as scout groups, parishes or other religious charities. We greatly welcome this. We feel it makes the provision considerably more in line with what we would expect to see: connecting charities that really are connected if effective control is shared between the two.

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Q 15 Sir Tony Baldry:   So in effect, the recent amendments that the Government tabled have responded to any lingering or outstanding concerns that you had about the Bill? 

John Preston: Yes, they do. 

Q 16 Jeremy Lefroy (Stafford) (Con):  Have you or any of the organisations that you represent made any analysis of the impact of taking people out of tax through raising the individual tax allowance—the basic tax allowance—given that often the people at the lower end of the income scale are some of the most generous contributors? 

Kevin Russell: I have not made a specific assessment of that, but the point you make is right. 

John Preston: We have made a small assessment. For us, the difficulty is that some individuals, particularly the elderly, may not be as closely aware of their taxable situation. The analysis has shown that there is a real need to communicate with people, check that they are still a taxpayer and for them to notify us as soon as they cease to be a taxpayer. We will try to do that on an annual basis. For a group of churchgoers, the effect is significant. While their giving is more generous in terms of the proportion of their income, it tends to be a slightly lower cash amount, but in terms of gift aid, it would probably cost us something like £3 million or £4 million a year. 

Jeremy Jacobs: We have not done any such analysis, but it goes back to my initial point: so many people do not sign gift aid forms at all, because of their concerns. Much of that is because they do not think they pay tax, when actually in many cases, they do. 

Q 17 Jeremy Lefroy:  Would you agree with an analysis of this Bill that, for the first time, it brings some equality in the treatment of taxpayers and non-taxpayers in respect of their charitable donations? 

Jeremy Jacobs: Yes, I have to say I am very encouraged by the process. I am not sure that everybody in my sector will agree, but personally I am. The idea that basic rate taxpayers and non-taxpayers should be dealt with in exactly the same way, as far as the charitable or third sector is concerned, is a positive move and I welcome it. 

Q 18 Susan Elan Jones (Clwyd South) (Lab):  Mr Jacobs has already answered this question, but may I ask Mr Russell and Mr Preston whether they know what percentage of their churches actually claim gift aid? The reason I ask is in terms of the requirement of three years of gift aid. Clearly, there are some very positive aspects of the Bill, but my fear is that, while some of the larger and more organised churches will benefit—and many others too—because of concerns about fraud, we could be in a position that little St John’s church down the road with 12 members, many of whom do not pay tax, will not benefit at all. I am interested in your answer. 

John Preston: I had thought that all our churches claimed gift aid, but we discovered one the other day that asked what gift aid was. Our studies show that there are at least 99%, but there may be a small handful that may not claim gift aid if nobody in the church is a regular taxpayer. We are confident that the figure is at least 99%. 

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Kevin Russell: As regards the churches that we serve, we see their accounts because we provide an independent examination service, akin to a charity audit. We provide mortgage loans, so we see their accounts from that perspective, and other services. So I can answer anecdotally, and I think it would reflect what Mr Preston said, that gift aid is probably claimed by around 99% of churches. However, my concern would be with the community charities that are motivated by and connected to the churches, where the gift aid claims would be much lower and some charities do not claim at all. I am also concerned, incidentally, with start-up charities. One of the things that we see, particularly in a non-conformist church, is something called church planting, where a church will move members to a new area. They will start a new church under the umbrella, if you like, of the mother church and at some point down the line they will become independent. This three-year qualification period would be a disincentive for them to go independent and grow their own wings and develop, because there is immediately at least a £3,750 disincentive. Because they are at present claiming under the gift aid of a mother church, there is no incentive for them to do that independently. In fact, it can be four years, because, on my reading of the Bill, there have to be three complete tax years. So if a church or a community charity becomes a tax charity earlier in the tax year, that could be the best part of a four-year period. I do not think that anyone has raised that point so far. 

Q 19 Mr Thomas:  I wonder, Mr Preston, what conversations you have had with the Churches Preservation Trust? I suppose that it would have a similar concern to the point about church planting, where a former church has potentially been brought back into use, either as a church or for other forms of community activity. Yet the three-year rule could, for example, preclude it from benefiting from this Bill as it is drafted. 

John Preston: I have not had specific conversations in relation to this scheme with the Churches Preservation Trust. I am trying to think whether that is possible, given the structure of the charity. That could be an issue for churches that were to transfer. 

Mr Thomas:  Have your three organisations received funding from other Government bodies? What has your experience been of that? 

Jeremy Jacobs: We have had relatively little funding. I cannot really give you a fair answer on that. 

Kevin Russell: Stewardship is itself a service organisation for churches and Christian charities. We run gift aid accounts, so 99.9% of our income is gift-aided. We are not typical in that sense and we do not rely on any Government funding at all. 

John Preston: The Church of England in its various forms and guises attracts a number of pots. The two main ones will be gift aid and the listed places of worship grant scheme for reclaiming VAT. There would also be applications for grant funding through the Heritage Lottery Fund. 

Q 20 Mark Durkan (Foyle) (SDLP):  As you have all said, churches by their nature have a very strong relationship. It is membership-based giving that you are generating;

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therefore you are able to have very high levels of gift aid participation. Mr Preston, you have said that you do not see the need for any other amendments to the Bill. However, is there not an element of, “Well, okay, I have got mine, because the Bill particularly suits churches”? It is very good as a “Small Church Donations Bill”. In terms of the broader pastoral interests of the church, is it as good as a Small Charitable Donations Bill? 

John Preston: Thank you. The specific question I was responding to was on behalf of the Church of England for the parishes of the Church of England. Yes, the Bill as it currently stands fits us very well. I understand that for the smaller community groups, particularly those that are starting up, there is the challenge of the three years. I am also a trustee of a separate trust. We have worked hard to avoid being dependent on small, one-off donations, and to establish regular supporters, so that we can do some projecting into the future. It seems to me that there is both, and in the longer term there is a balance between regular donations attracting gift aid and small, one-off donations. The two therefore seem to go together, whatever charity you are, albeit that there may be a little difficulty over the early years and starting up. 

Q 21 Mark Durkan:  Following what you said, Mr Preston, about not wanting to encourage one-off donations, there are obviously occasions where you will seek one-off donations, where one-off donations will be motivated by the public. Again, those who are in pastoral roles in communities will often be involved in situations where one-off funds are created in response to a single event. It might be a tragic criminal event, as we have seen recently, that impacts on a community, where there is not just a local response, but a national response where people want to give something to show support. It may be in response to a natural disaster. It is very naturally motivated giving that takes place then, and the funds created often have pastoral figures as their patrons as a way of giving assurance that it is not a scam and so on. Is it right that that sort of giving should be specifically precluded from benefiting from the provisions of the Bill? 

John Preston: In the kind of instance that you relate, there is a case. You could argue that if the scope of the Bill could be extended to cover those particular one-off donations, that would be helpful. I will clarify my earlier point. For ongoing charities, they need both. It is not that they do not want one-off donations, but they want regular funding that they can rely on as well. Going back to my earlier comment, it would be great to extend the Bill, but for me, one of the key provisions must be that we do not lose operational simplicity. We do not want to have to add significantly to our 200,000 hours of volunteer time to operate this. The benefit is hugely helpful, but it is only £1,250 per parish and there is a limit on how many hours you would want to invest to fundraise that. 

Jeremy Jacobs: The point you make is excellent. Given the limit and the restrictions in the Bill on the maximum amount, my original point about the cheque and credit card item would perhaps cover those one-off donations. I still have not been convinced by the arguments that I have seen that it should be limited to coins and notes. Just to come back on an earlier point, we receive a few Government funds in respect of places of worship.

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I hope that that corrects that impression. We receive a little bit, but it is a relatively small amount of our total income. 

Kevin Russell: Picking up on the point that you came in on about whether it is a Bill on small church donations or small charitable donations, I said at the outset that I am concerned about matching and the three-year registration period. One of the concerns I have with the three-year registration period is that it is a major disincentive to charities to start doing gift aid for the first time, because there is such a long tail before they benefit. One of the opportunities of this Bill is to encourage charities to start gift aiding, partly because there is a matching ratio there and partly because I can see it being marketed that if you get a pound of gift aid, you effectively at the current matching ratio get 75p back. You get your 25p of gift aid, but you also open up 50p of small donations. I think there is a win to be had there. 

I know that it has been proposed previously and rejected, but there should be a transitional period whereby in those first three years there is an opportunity for there to be a lower limit than the £5,000. For example, year one might be zero while the Revenue does its checks to ensure that the right kinds of characters are involved in the claims, but year two could be £2,000 and year three could be £4,000 on the basis that there are successful gift aid claims in each of those years and that the charities have gone through the fit and proper persons procedure. That would provide an opportunity and an incentive for the charity to ratchet up its gift aid over those three years and that would be very welcome. 

Picking up on whether we are satisfied with the Bill as it is, it seems that the changes in legal form requiring that the old charity is dissolved may be problematic, because there are reasons in charity law why you would not want to dissolve the old charity immediately. That is something that I would like the Committee to consider. 

On connected charities, it was asked earlier whether the Government amendment addresses the points there. It is a very complex provision and I would like to go away and put a cold towel around my head and re-examine that, but one point that sticks out for me is that the amendment provides that: 

“The Treasury may by order amend this Act”. 

I would prefer to see that the Revenue may by order determine that charities are or are not connected, so that sensibility rules. 

Q 22 Cathy Jamieson:  I hear what all members of the panel are saying about simplicity and ensuring that bureaucracy does not overtake absolutely everything. On Second Reading, we heard from Ministers that the top-up payments, as they described them, were essentially not actually a form of tax relief. Given that it is estimated that some £100 million will potentially come into the sector as a result of the top-up payments, is HMRC the best arm of government to be administering the scheme, or are there other ways to run the scheme? 

Kevin Russell: That is an interesting thought, and I am not sure of the reasoning behind the question. It does seem sensible to me insofar as the R68—the gift aid claim form that, all being well, is going online next April—will provide a very simple mechanism for the small donations top-ups to be administered. For that reason, I am content for the Revenue to administer it, but I am open to other suggestions. 

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John Preston: Again, thinking about the process of claiming, every parish currently has its HMRC gift aid claims number and those that are required to register with the Charity Commission have already done so, so having to register with a third organisation and to fulfil a third claims procedure seems to be potentially cumbersome. As I understand it, the intention simply to add a line at the bottom of the claims form so that there is transparency as to who the organisation is and the gift aid that they are already claiming and the opportunity to make a simple claim with just one line on the bottom of the form sounds really helpful. 

Jeremy Jacobs: I have one further comment on that, which is that the idea that it is linked to tax is a positive one. What worries me is the idea that this will be potentially seen as a grant provided by Government or by way of public expenditure, rather than a reallocation of tax. If we are moving into that realm, which is therefore at the whim of Government in terms of who they should give an allocation of public expenditure to, that slightly concerns me. 

Q 23 Mary Macleod (Brentford and Isleworth) (Con):  When you were going through the details of the Bill, I am sure that you went out to relevant parties, churches and synagogues to get a response and their thoughts on this. Did they give you any additional feedback on the Bill? What was their general feeling in terms of how they would benefit from it? 

John Preston: For me, I have gone through some fairly wide consultation, but it has necessarily been through my interpretation of the Bill. I have provided some guidance as to what the Bill effectively does. For most of our parishes, if they saw the raw text of the Bill, they would be very scared indeed. Essentially, their concerns and anxieties have been largely addressed in the amendments put forward in relation to the connectedness of a vicarage potentially disqualifying a church as a community building, and the idea that a single trustee in common could suddenly make two different charities connected. Those were the overwhelming pieces of feedback. From our parish’s perspective it seemed natural for them that this fitted alongside gift aid and was claimed through gift aid. 

Jeremy Jacobs: I have spoken to one or two people about community. I am a community person myself, so I think I can answer that. There was a general lack of interest. Why? Because the Jewish community receives very little by way of cash donations. As I explained, that is partly because of the structure and the religious aspect to this. It is perhaps partly because the community has more people involved in the general economy. I do not know. Whatever it was, there was a feeling that it did not impact on them particularly. We do not have the plate going round, although we do have a charity box. There was not a great deal of enthusiasm because they did not feel that it was going to impact them significantly. If that is changed, to go back to the business that is not cash but goes into all forms of payment, that might have raised their interest significantly. 

Kevin Russell: I have done one or two training sessions on the proposals. What came out is general ignorance of this measure coming into force. Therefore, besides good, clear guidance, there is a role for strong promotion of the scheme among the charity sector. Many questions came back from those sessions: what if this and what if

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that? Again, that comes back to good, clear guidance because I think most of those questions could be answered through guidance. 

Q 24 Mark Durkan:  To go back to connected charities and the issue of possible one-off funds in response to particular dramatic events, do you see any issues arising there? Often those one-off funds end up being in the care of a particular church figure or church premises. Do you see any difficulties there? 

Kevin Russell: One of the problems I have seen with connected charities would be, as Mr Preston said earlier, that A and B are trustees of one charity and B and C of another, and C and D of another, and you then get a chain of connections. That is very real in church communities, because within a given church you will probably have three or four families who are very prominent within that church. Those same people will be involved in community charities of the sort you describe. That is why I would very much like to see a Revenue power to say, “We didn’t really mean those charities at the end of the chain to be connected.” 

Q 25 Mr Thomas:  If one of the Government’s objectives was to ensure that as many church charities as possible were going to benefit from the Bill, why not devolve responsibility for the administration of these grants to the Church of England directly in your case, and to the Jewish community to your organisation, Mr Jacobs, and other church organisations, Mr Russell, to you? 

Kevin Russell: One of the groups of churches that we serve consists of those that do not have a denominational structure or resource. They can be quite disparate so it is hard to imagine how that would work, without setting up a series of supervisory bodies of some description, which would add to complexity. 

Jeremy Jacobs: I find that question fascinating because we have had to grapple with precisely that type of question for many years. The United Synagogue is an organisation that has effectively a single charity with 50 or 60 synagogues that go round it. There is a flow of funds into the centre and then reallocation out again. This is part of the process that we go through. The trouble and challenge that we have is that we know that the individual community understand their community best. Therefore to start to reallocate funds from the centre back down to whomever the centre feels is most appropriate can be counter-productive—it is actually a double-edged sword. 

John Preston: It also seems to me that this is not particularly about giving grants to every community charity; the Bill is to enable gift aid to reach the parts that other methods of gift aid cannot reach. Therefore it is a way of extending the reach of gift aid to those donations for which people do not find it worthwhile. There is a definite feeling, for some people, that they do not want to put their name to only giving £1.50—it feels embarrassing or stingy or whatever—yet, for us, 25 million lots of £1.50 or £2 are hugely significant for the Church. Therefore, retaining its link with gift aid, retaining its ability to reach the parts that classic gift aid cannot reach, would, for us, be a real strength. 

Q 26 Mr Thomas:  Let me just confirm—you expect every one of your members to benefit from this scheme? 

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John Preston: I expect that every one of our parishes will benefit and that the vast majority—well over 90%, probably over 95% with the change in the matching criteria—will be able to claim the full amount. 

Jeremy Jacobs: I think that pretty much every synagogue will benefit from this, albeit some will not benefit to the maximum amount, because of the size of their communities. Effectively, there is a potential overall loss to the United Synagogue, in that if we have 50 communities, I doubt that we will receive 50 times £1,250, because probably 20% of the communities will not receive the maximum in those small donations, particularly, as I repeat, as it is limited to cash. 

Kevin Russell: I would expect pretty much all of the churches we serve to benefit. Community charities may or may not. 

Q 27 Cathy Jamieson:  Mr Russell, let me take you back to your comment about the training you have done and the issues potentially raised for guidance. You talked about the “what if” questions that people had brought to you. Will you briefly give us the top five “what ifs” that have to be addressed in guidance? What are people most worried about? 

Kevin Russell: I think that the Government amendment on community buildings has addressed one of the issues around buildings connected to other buildings. There is some misunderstanding around whether a charity’s cake sale or jumble sale will qualify—again, guidance can easily deal with that. A question has incidentally arisen from the Government amendment in my mind: I went to a church last Friday because a leading worship artiste was singing there, and we had to pay £5, but it was definitely not a concert but a worship session. During the evening a charity appeal was made for providing water to Africa. I think that the Government amendment, because I paid to go to that event, will knock out the small donations that were collected for the African water projects. I do not think that that is what is intended. Those are the sorts of detailed questions that came out of the training. I think that all of them could be dealt with by guidance rather than by any amendment to the Bill. 

Q 28 Jeremy Lefroy:  I have one slightly technical question, which I would like to know whether you have considered. At funerals, donations are often made to various local charities, particularly local hospices or even smaller charities, and often donations are split between two or three different causes. Do you see a problem if, for instance, the church that collected those cash donations on behalf of local charities were then to bank them and provide the charities with a cheque for the donations, rather than physically giving a third of the cash to each? Could that be a problem? 

Jeremy Jacobs: From our perspective, absolutely not. We do this on a fairly regular basis, and the charities that receive it are perfectly happy with that, as are the donors. From our perspective, managing the cash through a bank account is absolutely the right way and the most effective way of ensuring control and security. 

Q 29 Jeremy Lefroy:  My question is whether you would see a problem in terms of the legislation, with the charity receiving the money in the form of a cheque or a bank transfer from the church. 

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Jeremy Jacobs: I had not considered that as an issue, but maybe it is. 

Kevin Russell: It is a very technical question, because it is determined by whether the recipient of that cash gift is the church or the ultimate charity. If it is the latter, then the ultimate charity has not received a cash donation within the legislation. If it is the church, I think it has. 

Q 30 Mary Macleod:  Mr Jacobs and Mr Russell, I think you are both accountants, and often accountants like complexity, but everyone has talked about operational simplicity within this. Can you expand on whether there is anything you would like to feed back to HMRC, or as part of the Bill, on simplicity? Mr Preston, you are in marketing. What can we do to make this as simple as possible, in order to get churches, synagogues and organisations engaged? 

Jeremy Jacobs: HMRC has a predilection among some of its inspectors to be perhaps over-zealous, on occasions. If there is a clear request back to HMRC to say, “You are doing your due diligence on charities, and you have effective controls within the draft legislation to ensure that only those legitimate charities are making the relevant claim,” that should be good enough for HMRC to trust our charities and not to have too heavy a hand on us, keeping the bureaucracy and over-zealousness to a minimum. 

Kevin Russell: I anticipate that the majority of churches won’t hear from the Revenue from one year to the next, having made claims under this scheme, so it is down to operational simplicity. My understanding is that at the moment they will simply have to complete a box on the R68 form that says, “We have received cash donations of this amount,” and the payment will come back. I have made some suggestions for amendments that may mean that there needs to be another box or two on the R68 if that were carried through, but I do not anticipate that that will be complex. It only comes down to if the Revenue wish to open an inquiry on an aspect of this, and if they have grounds for inquiry, the charity will have to take the course with that. 

John Preston: For me, for communicating with parishes, I am confident, even with a fairly complex Bill, that we can communicate simply and clearly. As far as marketing to individuals is concerned, it is not something I have given a great deal of thought to, but I think there is a very simple and quite empowering message that says, for example, on a wall safe for tourists, “This church is able to claim an additional £1,250 if we are able to receive £5,000 of small cash donations” or something along those lines, which hopefully will motivate and encourage people to make those small donations. I for one, if I am not able to give through gift aid, partly through a professional interest, am slightly less likely to give. 

The Chair:  That brings us to the end of the allotted time for these witnesses. May I thank them on behalf of the Committee? Thank you very much. 

Let me say to members of the Committee, supplementary questions are fine; you do not need to ask me if you want to ask one. It is the same as evidence sessions in a Select Committee. If I think you are taking too long, I will move on to something else. 

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Examination of Witnesses

Charlotte Ravenscroft, Helen Donoghue and Cath Lee gave evidence.  

10 am 

The Chair:  We will now hear evidence from representatives of the National Council for Voluntary Organisations, the Charity Tax Group and the Small Charities Coalition. Welcome to our meeting, and please introduce yourselves to the Committee. 

Charlotte Ravenscroft: Good morning. I am Charlotte Ravenscroft, policy manager at the National Council for Voluntary Organisations. 

Helen Donoghue: I am Helen Donoghue, director of the Charity Tax Group. 

Cath Lee: I am Cath Lee, and I am chief executive of the Small Charities Coalition. 

Q 31 Mr Thomas:  Thank you very much for coming to give evidence this morning. Could you set out what problems charities might have in achieving the eligibility criteria to receive the full £1,250 in grant? 

Charlotte Ravenscroft: Overall, we were very encouraged when the Bill was announced and the Chancellor said that it would deliver gift aid on the contents of the collecting tin and the street bucket, without the need for gift aid forms. A lot of charities were very encouraged by that message. We still strongly support the Bill’s potential to make a big difference for charities, but we think that charities could face problems with the eligibility rules in three areas: first, the three-year track record of making gift aid claims; secondly, the matching rule; and thirdly, certain provisions of the community buildings rules, although those mainly apply to charities with group structures. The three-year track record and the matching rule present the most difficulty, particularly for small charities. 

Helen Donoghue: I endorse that. From the outset, we have been concerned about the matching provisions being onerous. We would like to see the three-year rule changed in the way that Kevin Russell outlined earlier, such that there is some sort of sliding scale so that smaller and new charities could be encouraged to take advantage of this new provision, without having to wait for potentially four years. 

Cath Lee: We also agree that those are the key barriers to the scheme benefitting as many charities as it could. However, we welcome the scheme for this sector because we recognise that it will result in increased income for the sector, and it should result in an increase in the take-up of gift aid. We perceive that there are three main categories of small charities that will find it particularly difficult to benefit from the scheme. The first is start-up charities, because it will be a huge challenge for them to develop and keep going to the stage when they can meet the three-year eligibility criterion. The second group is those charities that do not already use the gift aid system and whose main sources of income are not easily gift aidable or are not gift aidable at all; they and charities that are diversifying their income, perhaps by trying to increase the number of individual donors where gift aid can be claimed, will be at a disadvantage in meeting the three-year track record. The third group is those charities that just lack the capacity to engage with the gift aid system as it is. That is not necessarily to do with size, but is to do with their

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level of skill and expertise, and also their appetite for taking on board a scheme that, in some ways, can be complex. In its most simple form—individual donors—it is perceived to be simple, but when more complicated applications of the gift aid system come into play, the complexity that that poses to small charities and organisations that are run largely by volunteers becomes a barrier to their ability to take up the benefit. 

Q 32 Mr Thomas:  Could you make those concerns a bit more real by giving us examples of real-life organisations that could lose out from the Bill as drafted? 

Cath Lee: I spoke to one of my members yesterday. The other point that I am keen to make is that, for small charities—when I say small, although our definition of small is income under £1 million, 40% of our members have under £50,000 income, so they are absolutely tiny and are run by their trustees—it has been a real struggle to get case studies to bring to you today. That is because small charities are firefighting; they are doing day-to-day operations, so this is not really priority for them. They are dealing with trying to get money in, which is a perennial issue for tiny charities. Some of them—the larger small charities—are dealing with cuts, so for them to be engaging with this as an issue that they need to take on board, respond to and give evidence to in order for it to benefit them is a real challenge. 

With that as the context, I have struggled to get some case studies, but I did manage to speak to somebody yesterday who was interesting because she and her organisation represent the two barriers. Her day job is as a fundraising director for a fairly large small charity, with an income of £500,000 to £750,000. Most of their income comes from statutory sources and grants from trusts and foundations. They do not have a very high level of gift aidable income; they do not have an individual donor base. However, looking on their website, I discovered that they ran a whole range of fundraising activities, on some of which they would be able to claim gift aid. Her response, though, was, “It’s not for us.” 

The other reason this member was interesting was that she is also on her local PTA. For them, the challenges are slightly different: they are very small and they are governed by the constitution set by the PTA Association—the national body—which requires them to turn over their PTA members every single year. That gives them real barriers in terms of consistency to being able to learn and apply the system for gift aid, so they do not claim it. For them, the benefits do not outweigh the effort it would require. 

That is an example for me of how two very different types of organisation could lose out on the potential benefit of this measure because of the three-year track record. There is a barrier to them taking out gift aid, so there is a barrier to them getting past the first hurdle. 

Charlotte Ravenscroft: If I may come in on this, I can answer in terms of numbers of charities that would be affected and just mention a few examples. In terms of the three-year track record, we know that each year about 65,000 charities are claiming gift aid, but we know that the total number of charities in the sector across the UK is around 163,000, so as you can see, we are talking about only about a third of all charities that currently claim gift aid. Of those, obviously not all of the 65,000 will have been claiming it consistently for three years, so those are the kinds of proportions we are looking at in relation to three-year track records. 

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NCVO contacted some of our smaller members to ask whether this provision would be an issue for them and we had a couple of dozen responses back from organisations as diverse as the Telford and Wrekin Senior Citizens’ Forum, the Wiltshire Rural Music School, Cumbria Action for Sustainability and Southside Young Leaders’ Academy. We had a whole range of our smaller members telling us that they do not yet have that three-year track record of gift aid claims, so that is a starting point for them. It means that they will not be able to access the scheme for at least those few years it takes them to build up that track record. 

You also asked about the matching rule. In terms of numbers, this is a very important issue. Whenever HMRC talks about the matching rules, it says, “Oh, it’s very straightforward. If the charity has £5,000 of small cash donations, it can claim up to £1,250.” It is not that simple. There are 25,000 charities claiming gift aid for an amount below £1,000 each year, so about one third of the total 65,000 charities using the gift aid scheme are claiming less than £1,000 a year. We could guess that maybe half of those will be caught by this matching rule, because they might be claiming less than £625 a year in gift aid, which is the minimum amount that you need in order to claim the small donations limit. 

What those numbers actually mean is that there is essentially one rule for the medium and large organisations and potentially 10,000 different rules for the smallest organisations, because of the matching principle, whereby they will each have their own individual limit, which will change each year. We think this is particularly difficult for the smaller charities and it hugely complicates a scheme that should be as simple as HMRC says it will be. 

Specific examples include the Comfrey Project, a charity in the north-east that supports refugees and asylum seekers to set up allotments, which told me that the matching scheme and the three-year lead-in will be issues for them; and Vita Nova, a small theatre group in Bournemouth that supports people recovering from drug and alcohol addiction problems to deliver theatre productions. Those are the kind of normal, small charities that will be really affected by both the three-year rule and the matching principle. 

Helen Donoghue: Whereas we do share concerns about the matching provisions and the three-year rule, the evidence would suggest that charities, such as the Churches and even very small organisations, that already have a good gift aid claim history will be able to take advantage of this. We therefore think it would be useful to have this as an incentive to encourage people to take up gift aid, which we understand is very much part of the Government and HMRC’s objective in trying to keep the scheme attached to gift aid in some format, and why it is called the gift aid small donations scheme. It is a two-edged sword. We really want to ensure that small organisations can take advantage, so some flexibility and a sliding scale would—this is a view that seems to be shared across the sector—be very helpful in encouraging participation. 

Q 33 Mary Macleod:  I find it quite interesting that in the first evidence session we had three men from religious organisations and we now have three ladies from non-governmental organisations and the voluntary sector. Welcome to you all and thank you for coming. 

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How much do the organisations that you work for feel that the Bill will have an overall benefit? 

Helen Donoghue: There is widespread support and if we can just get some of the smaller things that we have been talking about sorted out, the scheme will take off and will be very helpful and successful. Everybody in the sector has enjoyed gift aid and wants to make gift aid work as effectively as possible. This is really to try to capture the donations that are made where gift aid cannot be used. You were talking to the Churches before, and there are circumstances where you just cannot fill in the gift aid form—you might be at a community event where you have already made a regular donation or made a donation in response to an appeal for something, but you want to support the event and give an additional donation and do not necessarily want to be filling in a gift aid form. It all helps. There is a lot of support; it is just a question of ensuring that the fine detail is worked out to make sure that it benefits everybody as much as possible. 

Cath Lee: It will be of benefit, so the worst thing that could happen would be for it not to be there at all. No one in the sector wants that. More of our members could benefit if there were some flexibility around the three-year track record on gift aid and, in particular, the matching, because that adds a layer of complication in understanding the scheme. Take-up would be encouraged if people knew that it was just one time: you put your small donations in and you get your top-up payment back. That is a much simpler concept for people to deal with than having to think about whether they have put the right amount in the right tax year, whether it is matched and whether that changes next year, all in the context of having very few people to do that and lack of consistency. So it will be of benefit and there will be members of ours that will definitely benefit from this. 

I was at a training event that we ran earlier in the year in a session about charity tax in broader terms, and this scheme came up. Within that group, six of the nine attendees did not know about it—they were completely unaware. That is one of the first things to be addressed: awareness. Of those six who were unaware, two said they were not going to bother, that it sounded far too complicated and they did not have the resources even to read the documentation and get the benefit of guidance; and two others said it was great and they would start gift aid and get the clock ticking. 

The sector, and the very small end of it, is far from homogenous. It is difficult to talk about one-size-fits-all scenarios. Flexibility is key in order to be able torespond and benefit as many charities as possible, within the spirit of the announcement in the Budget last year. 

Q 34 Mary Macleod:  May I push you a bit on the three years? Do you not feel it is worthwhile? I can understand why you were saying that it would be nice if it was perhaps less, but is it not important to have some safeguards in there, so that to say that an NGO or a charity has to prove itself first is reasonable, and that is why there is that three-year rule? 

Charlotte Ravenscroft: In terms of gift aid, the main rationale for linking the two schemes is the fraud prevention measures and checks that are done on charities when they register for gift aid, so they are already on HMRC’s books and have gone through those checks, such as the fit and proper person test on their management. Those

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checks are mainly done at the start, when you register for gift aid, and we see that it makes sense that the schemes are linked: you must be registered for gift aid and be making some claims through gift aid. However, I am not sure how much additional protection the full three years provision builds in. That is why we would prefer a tapering system, so that if you are a new charity or registering for the first time for gift aid, there would be some way into the scheme for you. You would not have to wait for that three or potentially four years for it to kick in. 

Helen Donoghue: Yes, that is the important point. You might not want to give everybody the full £5,000 immediately, but if you could do it incrementally it would be an incentive to get people organised from day one, and using gift aid as well from day one, if possible. 

Q 35 Jeremy Lefroy:  Given that the link with gift aid and the three-year registration period is designed to counter fraud, can you think of other ways that might deal with that equally effectively? 

Charlotte Ravenscroft: As far as we are concerned, it makes sense to link it with the gift aid scheme because it does have those particular checks built in to it. We recognise why that has been done. At earlier stages we wondered whether there could be a different application process for the scheme, but on balance we can see why it is simpler just to tie it to the gift aid registration process. We see that that process does help to prevent fraud. I am not aware of how many specific cases there are at particular later stages or whether it makes a huge difference whether you can register for two or three years. It is the principle: if you are starting up a new charity, you should be able to access things on a par, or at least getting to a par, with those charities that have been around a while. 

Helen Donoghue: As one of the previous witnesses said, setting up a different sort of registration system would just add complexity. We would support its being tied to gift aid. That does, as Charlotte says, give you the added protection. 

Cath Lee: And we are where we are. We work with what we have got in small charities. What we have got is a very good gift aid system that benefits huge numbers of charities. It could benefit more, and this could benefit those charities if they were more easily able to take it up. That benefit would reach further down the size spectrum of charities. 

Q 36 Jeremy Lefroy:  It seems that tying in with gift aid makes sense, but from your knowledge of your sectors, how many, or what percentage of charities would find it extremely difficult to get any gift-aided income because they are aimed at and supported by groups who are not taxpayers—older people, young people, students or those on low income, perhaps? Do you have any figures on that? 

Charlotte Ravenscroft: I do not have specific figures on that, but as I said earlier, I think around a third of charities are using the gift aid scheme, so for various reasons a lot of charities do not. As you say, some of that will be because their donors are students and non-taxpayers, but for a lot of others it will just be because of the nature of their income streams—they might be getting more of their funds from grants or contracts, rather than from individual giving. 

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Cath Lee: I do not have anything specifically on the people who are not taxpayers, but this is about where they get their money from. Very small charities tend to earn their money through cash, but that sometimes comes through events, so would not necessarily qualify anyway. Then, as you go up the spectrum in terms of size, there is a more diverse mix. Awareness of what can and cannot be claimed in the gift aid system needs to be worked on, because some people do not realise that what they are doing would fit within that scheme. 

Q 37 Susan Elan Jones:  Can I go on to the matching principle that we have been talking about? I was very interested in points you made earlier, Ms Ravenscroft, about some of the small charities. When I first saw the figure of £625, I thought, “Well, it’s not that much,” but if the small charity that I managed in north London is anything to go by, it is quite possible to have quite a diversity of income sources and not reach that figure every year. 

This is not just about charities the bulk of whose income comes from statutory sources. There are, as Mr Lefroy said, a whole range of other things involved to do with, say, non-taxpayers. Some charities will have reasonably sizeable donations from Church or other faith congregations, charitable trusts and, in some cases, legacies. In many communities, events are a more usual source of fundraising. All those activities are good in themselves—I know arguments can be made about the tax status of charitable trusts, Churches or whatever—but the end result, under the terms of the Bill, is that people cannot claim. How do you think we get round that, so that we are not saying to small charities, “Go back to your drawing boards and waste all the time you would have spent running your organisations thinking about whether you can get church members to give to you directly or get the money in other ways”? Would it not be best if this principle was dropped? 

Charlotte Ravenscroft: I would support all your comments there. We can reasonably assume that around half of the 25,000 charities that are claiming less than £1,000 a year in gift aid will be caught up in this matching principle, as I have described. It is really very unfortunate, then, that the smaller local charities, where £600, which may not sound very much to us, could make a real big difference to the work they can do in their communities, will arbitrarily have been set up with a different financial limit for this scheme. It may be the case that they get most of their income, if they are volunteer-led, from bucket collections and fundraising events with tins on the street and so on. It just does not really work for me for those charities to have a different limit under this scheme, and we would strongly support the dropping of the matching principle. We think that would be much fairer for smaller organisations, and would significantly simplify the scheme and make it more understandable. 

Helen Donoghue: We take a slightly different view. We understand why the matching principle was introduced, but we would like the ratio changed. We had proposed, perhaps optimistically, 10:1 as opposed to 2:1, but even 3:1 would be more practical for some of the smaller organisations. It has to be said, however, that one or two of the people we have been talking to have argued that it will change their behaviour somewhat, in terms of the way that they try to fundraise. I think that none of us is really able to appreciate fully how it will change

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the behaviour of organisations, in the way in which they try to attract donations, and that will be well worth looking at. Some people had argued—we would support this—that the scheme should be reviewed after a period of time, to see whether it needed to be adjusted, and that is one of the provisions that we think might need to be adjusted to encourage a different type of fundraising behaviour, particularly among the smaller organisations. 

Q 38 Cathy Jamieson:  Thanks to everyone for coming along and giving evidence. I wonder if I could ask each of you specifically about community buildings, because there was a lot of concern about the complexity of the scheme as proposed, and the Government have tabled some amendments in relation to that. Could you explain some of the difficulties that organisations would face in relation to the community buildings proposals? Do you believe that the amendments now solve all those issues, or are there still areas in which you would like to see further change made as the Bill proceeds? 

Cath Lee: I think that the community buildings proposals will affect some, but not all, of our members. Again, the barrier is around how you get across the concepts. They are very difficult concepts to understand, and even people who have read the legislation and the explanatory notes still struggle to understand how it will work in practice. There would need to be lots of case studies in the guidance very clearly to explain different scenarios. 

We got some feedback from our members about gift aid, and about what people think about gift aid as it is—what their impressions of it are. Nearly 50% of them have a problem with it: 23% have a problem with the time it takes to understand the system, and a further 22.9% have a problem with the paperwork. To me, that indicates that there is a huge difficulty there for small charities in understanding it before they can apply it to their situation, and the community buildings proposals are an example of something that will confuse people and, at worst, put them off even bothering. 

One of the examples given by a colleague on the panel earlier is a clear indication. He talked about a church service, where there was an Africa project. Who should be claiming the top-up on that, the Africa water project or the church? That Africa water project would probably not know the answer, and would not necessarily be aware that it could claim. 

Again, it is the complexity that is the problem. Some of the amendments improve the community buildings situation, and there is a benefit to commercial buildings now being included in a broader sense, but the guidance will need to be crystal clear if it is to not put people off, and will need to have lots of case scenarios so that people can understand how this applies to them. 

Charlotte Ravenscroft: I think that the community buildings rules have been developed to try to make the scheme fairer for charities that have a group structure. We very much understand the spirit of that part of the Bill; there are just some concerns about the exact letter of it. When we have spoken to charities, they have described two main issues to us. They have been charities that have that group structure, so it does particularly apply to them. 

The first issue is charities the local branches of which are not tied to physical buildings in that way. For example, Victim Support is a national charity that used

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to be 77 separate local charities and is now, due to a restructuring, one organisation. It had hoped that the community buildings rules might support its organisation, with all those separate groups, but because its activities do not always take place within a community building, it looks as though the rules will not support it in claiming more than once under the scheme. 

The other issue is charities that have specific buildings associated with their groups but will not meet the specific requirement to conduct their fundraising while a charitable activity is taking place. For example, the Royal Life Saving Society has 47 local clubs, and its charitable activities are training people in life-saving skills. It would not receive donations while training someone in life-saving skills. If you pursue that a little further, most charities would not receive donations from their beneficiaries in the process of delivering charitable services. That is particularly the case if you are serving vulnerable individuals or children. I spoke to the Alzheimer’s Society, which is another example of a national organisation with local branches. While it sometimes raises funds within its building in a way that could be during its charitable activities, that does not always apply. It often receives small cash donations while doing other fundraising activity locally. The complexity of the community buildings rules means that it might not be clear which of these charities or group structures can benefit from them, and in what circumstances the donations need to be made. 

Q 39 Cathy Jamieson:  May I pursue that slightly? You raised questions to do with the letter of the Bill. Of course, that is very important; it is exactly what we have to scrutinise. I am trying to tease out whether there are further things in the Bill that you would like to see amended. Are you content that everything could be dealt with by guidance, or would that simply be too complicated? 

Charlotte Ravenscroft: Where the Government amendment has come in to clarify the community buildings rule further, it specifically limits donations to participants in a charitable activity, and says that the donation must be made while a charity activity is taking place. From our point of view, while that amendment is helpful for a church congregation, it does not suit the way that charities operate. We would prefer to see an amendment that specified that the small donation is applied to the charitable purposes of that local group. That would be a much better solution for many of our charities that would be caught up in this. 

The only other area where we suggest that the community buildings rules could be improved is in relation to residential buildings. We know that certain types of charities—for example, hospices—might consider their community building to be a residential facility. We know that those sorts of organisations may have concerns about that restriction. We are glad that the Government amendments make changes to do with commercial and mixed-use property. We think those are helpful. 

Helen Donoghue: Going back to the first point about community buildings generally, in a way we were glad that the provision was introduced to help those charities for which it was needed—the people with similar aims and objectives, but very different structures. It would have been a serious flaw if that had not been there. It is

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important to get it right, but also important to recognise why it was there in the first place, and there is an understanding in the sector about that. 

We have talked a lot about complexity. One of the things that it is worth putting on the record is that we have an undertaking from HMRC that it will work closely with different organisations in the sector to provide detailed guidance to help organisations to use the scheme as effectively as possible. We want to make sure that happens, and we hope that it will be carried through, and that sufficient resources will be available for that. 

The Government amendments appear to deal with a lot of the concerns that were raised about the community buildings provision. Like Charlotte, we still have some concern that Government amendments 4 to 6 seem to have the effect that small donations collected in community buildings do not count towards the community building amount, unless they were collected from persons with whom the charity is carrying out a charitable activity. That seems to imply that charity is something done by one group of people to another group of people. Something does not quite feel right there. We have not had a long time to look at this, but somehow we want to take that away and have a further think about it. 

Q 40 Pat Glass (North West Durham) (Lab):  Charlotte, you gave us some very helpful figures on the charities that will be affected by the three-year track record and the matching rule. Have any of you done any estimation of charities that will be affected because they simply will not be in existence for three years? I am thinking about groups that I am involved with, where communities have come together to raise money largely from small donations for a specific project, and they will be done and dusted and finished in three years. Even though they qualified for gift aid, they will never qualify for this funding. Have you any idea how many of those kinds of groups there will be? 

Charlotte Ravenscroft: I am sorry, but I do not have numbers on that. I am happy to take a look at it and write further if there is more information available. 

Q 41 Pat Glass:  Can you guess how many charities there are that complete their work within three years and then disband? 

Charlotte Ravenscroft: I do not have personal knowledge of that; I am sorry. 

Cath Lee: We take a lot of inquiries from people who are looking to start up a charity, and we take around 15 a month of those. Some of those will not be in existence in three years because they just will not make it through the course of what they need to do, and will not be able to raise enough money to continue. Some of those would wrap up, such as a fund that is set up in memoriam. That comes up quite frequently. I think it is very difficult, however, to get data on that. There is an issue about granularity and the data available for the very small end of the sector anyway. It is very difficult to drill down and find that. 

Helen Donoghue: But you did say that some of those organisations might be able to take advantage of gift aid. An important point that we must not forget in all this is that charities can take advantage of the gift aid scheme, and everybody wants to encourage them to do so as early as possible in their existence. 

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Q 42 Nigel Mills (Amber Valley) (Con):  Just on that point, one type of local charity that we see a lot is the type that is raising money for health treatment for a child, or for certain medical adaptations. That is a situation where everyone has huge sympathy and they raise a lot of money quickly through bucket shaking, but it would be completely out of this system, because the child will presumably have had the treatment, one way or another, within those three years. That is a further example. My question is on whether we are in danger of double-regulating here. We seem to want HMRC to quality control charities and check that they are real, substantial and not fraudulent, but do we not have Charity Commission registration and requirements to do exactly the same thing? 

Helen Donoghue: I would not say that they do exactly the same thing. HMRC is looking after the tax reliefs, and the Charity Commission is looking at the objectives of the organisation and ensuring that it fulfils its other registration requirements. In so far as it would be possible, and if funds were available, everybody would like all the computer systems of the Charity Commission, HMRC, OSCR and so on to talk to each other, so that there was not a necessity to fill in two lots of forms. I think that it would be dangerous to start upsetting the apple cart at this stage, and to try to change any arrangements when people are already working hard to ensure that they understand them. I think a lot of it goes back to straightforward guidance. To go back to your point about appeals for individual children, how many of those get as far as being registered as charities in the first place? They would not be in a position to take advantage of any of the tax reliefs, and may never become actual charities in the first place. 

Cath Lee: Many of our members are not big enough to be registered with the Charity Commission. They are under that £5,000 threshold, yet they are considered by HMRC to be charities for tax purposes. There is an additional piece of paper—an additional task—for charities to become recognised as charities for tax purposes, which is slightly different from when they are setting up their small charity. When they are doing that, there is a small charity constitution that is not detailed enough for HMRC’s purposes, in terms of describing the public benefit and their charitable objects. 

For some small charities that could benefit from gift aid at an early stage, it depends where they go first—whether they go to the Charity Commission for their guidance or start with HMRC—as to whether they have to do that additional paperwork in order to be able to claim gift aid and be eligible for this scheme. 

Q 43 Mr Thomas:  Clearly, there is concern on all sides to prevent fraud in the charity sector and, given the debate that took place after the Budget around the charity tax cap, there is certainly concern in some quarters about levels of fraud in the charity sector. Can you give us a sense of your estimates of the level of fraud in the sector, particularly among those charities that do not claim gift aid? 

Cath Lee: I did know these; I have not brought them with me. 

Charlotte Ravenscroft: We do not have specific figures for the level of fraud, but we recognise that the Government want to link the small donation scheme to gift aid partly as a fraud prevention measure. We agree that it is in all

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our interests to be vigilant and prevent fraud—it is as much in the charity sector’s interest as it is in the public taxpayers’ interest—so we strongly support work to prevent fraud. For this scheme, we think that the registration for gift aid, where charities go through those checks, is the most important measure. NCVO does a lot of work to support HMRC in the prevention of fraud, and has recently set up a new group looking particularly at charity fraud. It is something we would always be concerned about, but it is about a balance in some of the rules in this scheme. We feel that the protection built into the gift aid scheme is sufficient not to require some of these additional rules and complications. 

Q 44 Mr Thomas:  Sure. I am not querying your commitment to anti-fraud measures; I am just trying to think through the variety of ways in which government, in all its forms, gets money to small charities. Presumably there are a variety of ways in which one prevents fraud, but the specific linkage to gift aid suggests that HMRC has concerns about the level of fraud within the sector. Is that a concern that you have heard or that you share? 

Charlotte Ravenscroft: We have asked HMRC a number of times about the particular level of fraud that it is concerned about, but for the understandable reason that it deals with particular circumstances, it does not release that information about the level of fraud, so I do not have those figures. 

Helen Donoghue: It is worth asking the Treasury rather than us, because, as Charlotte says, we are not privy to what it is aware of. 

Sheila Gilmore (Edinburgh East) (Lab):  I just want to clarify something. Maybe I misunderstood, but if a charity registers for gift aid, can it start to claim gift aid right away? If so, why is there this additional barrier of having had to claim the gift aid for three years in order to get into the small donation scheme? It is a double barrier. Am I right in thinking that once you have registered yourself for gift aid, you can start to claim it right away and that it might be quite large amounts? 

Helen Donoghue: Our understanding is that this is an additional facility that does not have quite as many restrictions around it, because you are not seeing where the money has come from, you have not got the name and address of the donor, you have not got the checks that are available through gift aid. The reason for the delay is that HMRC wanted to ensure that a charity was operating gift aid successfully and had got good systems in place before it could take advantage of this scheme. We understand that there is concern about trying to set up and suddenly take advantage of a scheme where you have not got much information about where the money has come from and you could suddenly say, “We have raised this amount of money.” That is why we would like a sliding scale, so that you could have a smaller amount claimed in year one and year two and then the full amount in year three. That is just to be able to satisfy concerns about the fact that there is not as much information available. 

Sheila Gilmore:  The amounts involved here are relatively low. Would that not in itself give some protection to the Treasury? 

Helen Donoghue: We would say that, yes. That is why our proposal for having a smaller amount able to be claimed in year one would give that additional protection. There comes a point where it is not actually worth

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setting up a charity to claim that sort of money. Having said that, again, it is worth putting that question to HMRC, because it is obviously concerned that people are prepared to go to extraordinary lengths to defraud the tax system. The balance has to be struck. We think that the balance could be adjusted a little more in favour of the charity. 

Mark Durkan:  You indicated earlier that there was some suggestion that there may be a behavioural change or reorientation on the part of some charities. In terms of some locally-based charities with a more international outlook that I am aware of, some have a relationship with each other where one is a bigger charity and tends to have an emphasis on gift aid. Others work very much in connection with schools and youth groups in particular, to generate funding through them, and have no reliance on gift aid. They are quite happy to relate to each other in profile; they do not bump into each other or crowd each other’s fundraising calendar. They complement each other in that way. There is concern that this Bill means that the second, smaller charity, which concentrates more on what can be done through schoolchildren and events, will have to start using gift aid as well. It is not where they have been until now, but it is where they have to go. 

Cath Lee: Not all organisations raise their money in a way that is gift aidable and that does not necessarily need to change. This is about those organisations that could benefit from gift aid being able to access the scheme through the qualification criteria, so that there can be a greater benefit. It is not necessary to force everybody into forms of fundraising that do not suit the complexity of what they deliver or the scope of how they operate. It has not been taken up enough: there are 64,000 charities out of 164,000 registered charities, plus all the under-the-radar organisations that are not taking up gift aid already. Gift aid is the tip of the iceberg; much more could be done and there could be greater benefit for small charities. It is not suitable for everybody, and it is not possible for a scheme of this scope to meet everybody’s needs. However, it could meet more needs of more charities. 

Mark Durkan:  Helen, you have mentioned the possibility of a review period in terms of some of the questions out there about the Bill. If there were to be a review clause in the Bill, what do you think would be a reasonable time line for that review? Are there are any particular aspects that you think should be specifically included in that review? 

Helen Donoghue: We had originally talked about three years as a good point—three or five years, but probably three—and matching, without a doubt. There should be a sliding scale of trying to get people when they can take advantage of it. These are the two things that we would want. We would also want to ensure that the community buildings and the connected persons rules are not causing any particular problems. We just do not know yet. As I said before, we have to look at the Government amendments to ensure that they do not cause any particular problems that we have not yet envisaged. I would say that three years is a good starting point. 

Charlotte Ravenscroft: While a review would certainly be helpful, to see how the scheme is going, the opportunity here is obviously to make some amendments that fix

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some specific issues so that the scheme operates in the way that everyone hopes that it will. So, on the matching and three-year rules, if you can consider some of the suggestions that we have made, it will be possible to address things now rather than waiting for the three-year review. 

Q 45 Susan Elan Jones:  Moving on to the fraud point, I am interested that you seem to think, from your evidence, that the balance is too much in favour of the detection of potential fraud rather than in assisting small charities in some cases. No doubt, at some point, as with every scheme known to humanity, there will be some story somewhere about some bloke in a back bedroom who has bought a motorbike on the basis of the scheme; we will have three days when we all get excited about that and then, rather than pursuing the obvious route of prosecuting the chap who has got the motorbike, we might look at this as a disproportionate problem. An analogy that I am interested in is the Awards for All scheme, under which I think—correct me if I am wrong—grants of up to about £10,000 are awarded, and I do not think that you even have to be a registered charity but only a community group. If the lottery is prepared to think that that is valid and acceptable, with certain checks, I am wondering whether it is fair to say that things might be a bit disproportionate as they stand in terms of the fraud aspect. 

Charlotte Ravenscroft: I used to work at the Big Lottery Fund so I am very familiar with the Awards for All scheme. You are right that there the assessment is that, given that these are small grants, it has a proportionate approach to assessing risk, and it allows groups to apply for them. Obviously, it has its application process, which in this case the registration for HMRC tax purposes is the equivalent of, but I agree that the few bad apples that you will get in any scheme should not mean that the rules overall on the face of the Bill are so disproportionately restrictive that those other tens of thousands of small charities that would really benefit from this scheme will struggle to access it. I think that that kind of complexity and the fairness balance need to be readjusted. 

Q 46 Mr Thomas:  The definition of a small donation is £20 in cash. Do you think that it should be as limited as that? Should it be higher or lower? What is your view on the method of the donation included in the schedule? 

Cath Lee: In terms of the level, I think again that the guidance will be crucial, because small charities will worry about that and they will need to be confident that they are getting it right. Some of the reasons that people do not take up gift aid and do not engage in initiatives that could benefit them are for fear of getting it wrong. So the person I spoke to yesterday said, “Partly we don’t do it because if we get it wrong we will be considered fraudulent.” There is that perception there and, having taken part in some of the earlier consultations, that specific issue was raised. There was a lot of discussion about whether it was a £10 note, or a £20 note put into collection tins and £10 given back as change—people will spend a disproportionate amount of time worrying about the denomination. However, the scheme is set up for cash donations and small donations, and if you start getting to larger denominations it becomes something different, so a line has to be drawn somewhere. The guidance needs to be simple

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and, for me, that is a lesser issue than perhaps the benefits that could be gained by amending some of these other major barriers—the flexibility around the three years and the matching. 

Q 47 Mr Thomas:  So you do not think that cheques or donations by text message should be included? 

Cath Lee: I think greater benefit could be gained from amending the key barriers: the matching and the three years. Cheques are a valid way of giving money, and many charities receive anonymous donations on which it would not be possible to claim gift aid. I would be cautious about introducing yet more complexity into a scheme that is over-complex. That is not to say that, if there were a review in the future, that should not be considered. For me, the key things are the matching and the three years. If they were more flexible, they would benefit more small charities. 

Helen Donoghue: We think that £20 somehow feels about right. Yes, cheques would be helpful in some circumstances, but the counter-argument is that if someone is bothering to fill in a cheque, could they not be persuaded to fill in the gift aid form? 

Charlotte Ravenscroft: I think you are right that the line needs to be drawn somewhere, so we understand why they have chosen that £20 figure, which fits the denomination of £20 notes. Maybe one thing for a review to look at is future-proofing the scheme. We know people maybe do donate more now by web and text, and whatever the next technology will be, as well as through cheques. So non-cash small donations might be something to consider, but, as my colleagues have said, that is not as significant an issue in our view as the three-year track record and the matching rules. 

Q 48 Penny Mordaunt (Portsmouth North) (Con):  This is a very quick question. You might not have an answer, but I want to go back to the community building rule, which sought to address an unfairness. HMRC picked a solution that was nice and straightforward for itself, but, given that that unfairness arises from how something is constituted, do you have any other suggestions for criteria the HMRC could have used? 

Helen Donoghue: Not with the problem they were trying to resolve initially, no. 

Charlotte Ravenscroft: I know the Big Lottery Fund is able to consider separate branches of larger organisations in some of its application processes, but because an automated system is running this scheme I can understand why it is helpful to have a specific discrete community building. The issue is with how donations are expected to be made in the context of that building. We have a problem with donations being made while a charitable activity is taking place. It is the “while” that is the problem, which is why we think that participants in the charitable activity will not necessarily make donations to charity. In many cases, the donor group will be separate from the beneficiary group. 

Q 49 Mark Durkan:  I have a small question arising from cash donations and the issue of denomination. Where I live, which is right on the Irish border, many donations received by local charities, and even local churches under planned giving, are often in euros, because it is an area where people are using euros to go over the

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border to buy petrol, and so on, and many people’s dealings are on a cross-border basis. If denominations are a question, is currency potentially a question in the border areas of Ireland? 

Helen Donoghue: It might well be. It is also the case that in collection boxes in museums and churches, you often see foreign currency. So, yes, it would be nice if they could be included, too. I do not think that is going to be practical, though. 

The Chair:  I thank you on behalf of the Committee for coming. Thanks very much. 

Examination of Witness

John Hodge gave evidence.  

11 am 

Q 50 The Chair:  I welcome a representative of the Law Society of Scotland to give evidence. Please introduce yourself. 

John Hodge: I am John Hodge, a member of the charity sub-committee of the law reform committee of the Law Society of Scotland. I am a solicitor in private practice and also involved with charities both professionally and as a volunteer. 

Q 51 Cathy Jamieson:  Thanks very much for coming to give evidence. To begin with, could you set out your general views on the Bill, which I believe are supportive, wanting to see as many organisations as possible take advantage? Could you also identify particular issues, specifically around the definition of a charity, as the Bill uses the English definition? Does that pose any potential problems for Scotland? 

John Hodge: Basically, the Law Society of Scotland is supportive of the Bill. We think that it is a good start and will enable several charities to have a benefit that they would not otherwise get from cash donations. We appreciate the problems and the balances that have to be sought and we feel that that is perhaps ongoing work. 

We would encourage subjecting the Bill to review to see how it works in practice and whether there are opportunities after it has bedded down for a time to see whether it could be extended, and some of the charities that would not at the moment qualify might at some stage be considered to qualify under the terms of it. We would be keen for there to be some flexibility either in the legislation, or alternatively there should be an undertaking that it should be reviewed within three or five years, after a suitable time. 

One effect we have noticed is obviously that some of the very small and new start-up charities would not be able to benefit. Some of those might be set up to deal with a particular situation that has arisen, or local fundraising. One situation that came to mind that we were involved in was the setting up of the Linda Norgrove Foundation. At that stage, thanks to the co-operation of OSCR, the Office of the Scottish Charity Regulator, and HMRC we managed to have the charity set up in time for her funeral and it was able to get gift aid. Clearly, in that situation we would not have been able to get the benefit of the small donations Bill for any cash donations that might have been given at the funeral or

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whenever. That sort of situation is still excluded, and that is the type of situation that we might like to be considered as time goes on. 

Generally, we thought £20 was a bit small. We did find it quite difficult to know how you police this, and to assume that gifts are not greater than £20. My own experience when out with the collecting tin or passing the plate around at church is that you do not want to look and see what people are putting in. I deliberately try to look away in those situations. How in practice would it be? Would it be the case that when the money is counted and there are two £20 notes folded together it is assumed that that donation was more than £20? There could be difficulties. A lot of charities are keen to ensure that they abide by the letter and I can see that this could be a difficult point. 

One other item that slightly surprised us is in clause 3(2) where it says that 

“if a small donation…is applied to purposes other than charitable purposes” 

it will not be treated as a small donation. A charity has to apply all its funds for charitable purposes. If that means primary charity purposes, that is, that the food is going to the homeless or people overseas rather than towards the administrative costs, I am not sure how that would work. Would you have to put cash into a separate account and then apply that account solely for these purposes? As I said, a charity basically has to apply all its funds for charitable purposes, and we found it difficult to understand quite what this subsection was there for and what it was meant to achieve. I think the guidance stated that it was to keep it in line with the gift aid rules. The gift aid rules have detailed provisions about benefits for the donor, and I think there is a similar provision inserted in the schedule to the Bill, so it did not seem to me to tally with that. 

Moving on, we thought the connected charities provisions were pretty complex. We also felt that there could be some unforeseen consequences where charities are linked where they are not really in practice. It is quite common for there to be cross-representations between charities and to have representatives of one on the board of the other. That is to be encouraged. We encourage charities working together. The danger is that they might then fall to be treated as connected and would not be entitled to independent small donations provision. 

Looking forward to the community buildings provision, we understand why that is necessary. We did feel, looking at the whole provision, that it was pretty complex and quite difficult to follow. It got more and more complicated as we got into it. We noticed that there was a provision that HMRC may provide for cases where a building is no longer to be treated as a community building. The negative was there, but there was not also the positive. We wondered whether guidance could not be given both ways. 

I presume that clause 12 is intended to apply where an unincorporated charity, for instance, incorporates, possibly into a company limited by a guarantee or a SCIO—a Scottish charitable incorporated organisation—and we think that covers that. There could be issues if there was an amalgamation and one charity with a gift aid record amalgamated and transferred its assets to another one without it. We are not convinced that this particular clause would necessarily cover that situation. 

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I was asked to comment particularly on the definition of “charitable purpose”. In Scotland, we have been used, for some time, to operating with two separate definitions. We have our own definition in the Charities and Trustee Investment (Scotland) Act 2005, which is broadly similar but not identical. There are various differences from that in the Charities Act 2011. We also have to cope with the HMRC’s interpretation, which, again, can be slightly different. Our concern was that the definition in clause 17 might lead us to having three separate definitions to cope with. It would be helpful and beneficial if we could bring this together. This issue is before us, and we intend to make representations to the Scottish Government as well. We hope that possibly, in due time, we may get a unified definition at some stage. There were also some very technical comments on whether the reference was strictly necessary, given the terms of the Charities Act 2011, but that is delving into very detailed wording. 

Q 52 Cathy Jamieson:  May I probe slightly on the clause you mentioned? We are engaged in line-by-line scrutiny, which is an opportunity, if we feel that that particular part is not necessary or should be amended, to do something about it, notwithstanding the wider

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context in which representations are going to be made to the Scottish Government. Should the Committee be looking to either remove or amend that clause? 

John Hodge: We thought that including a reference to the law of Scotland—I am assuming Northern Ireland as well, although I have not looked into Northern Ireland’s situation—was not strictly necessary. The terms of the Charities Act 2011, in its definition of the early sections, in section 7, says that the chapter affects the law of Scotland except in so far as it falls within devolved matters. We therefore thought that that was sufficient to apply it to Scotland. If one is going to have the exception in to be consistent, it might be better to have a similar qualification to that in the Charities Act, to say that it applies to Scotland except in so far as the references to devolved matters. 

The Chair:  If Members have no further questions, that brings us to the end of our business this morning. 

Ordered, That further consideration be now adjourned. —(Jeremy Lefroy.)  

11.11 am 

Adjourned till this day at Two o’clock.  

Prepared 17th October 2012