Small Charitable Donations Bill
The Committee consisted of the following Members:
Alison Groves, Steven Mark, Committee Clerks
† attended the Committee
Amendment is designed to probe why charities which haven’t made a successful Gift Aid exemption claim in at least three of the previous seven tax years shouldn’t be eligible for a payment under this Bill. It would also allow a debate on why charities recently started shouldn’t be eligible.
Amendment is designed to probe why charities which haven’t made a successful Gift Aid exemption claim in at least three of the previous seven tax years shouldn’t be eligible for a payment under this Bill. It would also allow a debate on why charities recently started shouldn’t be eligible.
Amendment is designed to probe why charities which haven’t made a successful Gift Aid exemption claim in at least three of the previous seven tax years shouldn’t be eligible for a payment under this Bill. It would also allow a debate on why charities recently started shouldn’t be eligible.
Mr Gareth Thomas (Harrow West) (Lab/Co-op): I am grateful to have the opportunity to serve again under your chairmanship, Mr Robertson. I will, if I may, gently encourage you to look out for attempted intimidation by the Government Whip and protect those of us on the Opposition Benches, with all the odds stacked against us in these debates.
Just before we broke for lunch, I had highlighted the evidence from the National Council for Voluntary Organisations, raising the concerns of some of the smaller organisations that are its members about the requirement for three years of gift aid claims to have been made before a charity might be eligible under this small grants scheme from the Treasury. They were the Telford and Wrekin Senior Citizens’ Forum, the Wiltshire Rural Music School, Cumbria Action for Sustainability and Southside Young Leaders’ Academy.
I hoped that the concerns of the Telford and Wrekin Senior Citizens’ Forum might appeal to the hon. Member for Banbury such that he would want to participate in the raising of concerns with the Minister about this harsh, restrictive part of the eligibility criteria. The hon. Gentleman is not in his place, but perhaps the Minister will want to reflect on a similar organisation in his constituency. I do not know whether there is a Bromsgrove and Worcester senior citizens forum. Let us imagine that the organisation to which I am referring has not put in for gift aid. The event that he is proposing to organise in January successfully persuades it to put in for gift aid. Nevertheless, under this clause, that senior citizens group will not benefit at all from this scheme for at least three years.
I look to the hon. Member for Stafford, whom I suspect has the most sophistication and interest in musical things of Government Members, to be able to share the sense of concern that the Wiltshire Rural Music School might have. I do not know whether there is a Stafford rural music school, but let us imagine the situation that the Wiltshire Rural Music School is in and how it feels. It is not yet registered for gift aid and is worried about the three-year funding rule. Potentially, a very good organisation stands to lose out under this scheme. He surely will be able to recognise that that is not a unique experience and problem.
Jeremy Lefroy (Stafford) (Con): I am indeed passionate about music, and there is a fine Staffordshire young musicians charity, which is already registered for gift aid if I am not mistaken and of which I think I am a member, although perhaps I owe it this year’s subscription, so I thank the hon. Gentleman for reminding me to renew my subscription.
Mr Thomas: I am grateful to have the opportunity to be helpful to the hon. Gentleman. I hope that he will be helpful to organisations such as the Wiltshire Rural Music School by raising its concerns, as well as his concerns, with the Minister about the three-year rule.
Cumbria Action for Sustainability has raised concerns, but perhaps the hon. Member for Brentford and Isleworth will want to wonder whether there could be a Brentford action for sustainability that is similarly worried about the three-year funding rule—a charity that might be an ally in her fight with the Treasury about a third runway for Heathrow. What a tragedy it would be if such a body were not able to claim assistance under this scheme because of the Minister’s insistence on the three-year rule.
Lastly, the Southside young leaders academy, no doubt doing extremely valuable work to encourage the next generation of leaders—perhaps, for a similar organisation in Chelsea and Fulham, the hon. Member for Chelsea and Fulham might be the most appropriate person to champion that next generation of wannabe leaders, expressing concerns to the Minister about the three-year funding rule. A series of organisations—small charities perhaps registered for gift aid already but not necessarily with three years of claims in place—could, with a more generous set of eligibility criteria, benefit from the scheme; because of the sub-section as drafted, however, they stand to lose out on the possibility of up to £1,250. Given the scale of the concern that we in opposition have had played back us, although I am sure
I have drawn the attention of the Committee to what the NCVO said, but the Charity Tax Group has also made its concerns clear. Helen Donoghue, the director of the Charity Tax Group, at an evidence session last week, said that she would like to see the three-year rule changed so that, for example,
Cath Lee, chief executive of the Small Charities Coalition, shared worries about not only the matching issue, which we discussed earlier, but the three-year provision, which is a real concern for smaller charities.
In addition to the NCVO, the Charity Tax Group and the Small Charities Coalition, other representatives of the charities sector have been equally concerned about the scale of what will now be required to get access to the scheme under the three-year gift aid claims rule. Again at an evidence session, John Low, the chief executive of the Charities Aid Foundation, said:
“The Bill now requires charities accessing the scheme to have been claiming gift aid for three years”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 46, Q77.].
“the eligibility criteria will rule out the very charities that I think this was intended to reach out to in the first place—those very small, local groups”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 47, Q77.]
that we are all familiar with and that struggle to get sufficient funding from the different income streams available to them. Her concerns were particularly striking, because she emphasised that the majority of her members are large charities—the smallest having a membership of 100,000 people and the largest being the Wellcome Trust—but that she was concerned to ensure that the smaller community charities should benefit from this scheme in a way that at the moment they will not be able to.
Mr Robertson, you were not here this morning, but we dwelt on the problems facing parent teacher associations, highlighting the fact that only 16% of PTAs are registered for gift aid. The hon. Member for Stafford rightly encouraged all Committee members—and the whole House, I assume—to push for more PTAs and small charities to register for gift aid. However, if subsection (1) remains in the Bill, the concern is that even if our efforts were successful, small charities would still not get access to funding under the scheme for at least another three years and potentially for four years, depending on when in the tax year they sought to register.
We gave the example of Eton, which is registered for gift aid at the moment and, as my hon. Friend the Member for Kilmarnock and Loudoun said, has a huge capacity to help people claim gift aid. It is one charity that is benefiting from the scheme, but 84% of PTAs—organisations that seek to serve our communities and help bring in extra resources to make the journey through primary and secondary school that little bit easier for
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Does my hon. Friend share my concerns that from the statistics we have heard, 65,000 organisations claimed gift aid last year, but a far higher number are registered for it? The Institute of Fundraising has suggested that the figure may be around 100,000. As the Bill requires charities to have claimed for three years, there may be a number of charities that have perhaps only claimed once, or that have lapsed and may not be eligible for the scheme if they have not claimed for three of the past seven years. That would rule out a significant number of charities.
Mr Thomas: My hon. Friend makes an extremely helpful intervention by pointing out the recent comments by the Institute of Fundraising. I draw the Committee’s attention to the fact that there are about 163,000 charities registered with the Charity Commission, but there are many others that do not have to register with that organisation. I understand that Lord Hodgson estimates that there are approximately 350,000 charities in the UK, the vast majority of which will not be able to benefit from what is effectively a small grants scheme from the Treasury, because of the extremely restrictive three-year gift aid claims measure.
It strikes the Opposition that, notwithstanding the requirements relating to gift aid and their eliminating a whole series of charities from potentially accessing the scheme, the three-year rule is particularly pernicious, in that it would prevent the participation of many charities, PTAs and Scout groups. I am sure, Mr Robertson, that you will be particularly interested in the relatively low level of registration—just 52%—of many Scout groups in Scotland. Some 48% of Scout groups in Scotland will not be able to take advantage of the Bill, and not only because they are not registered for gift aid; even if, through an intervention by you, the hon. Member for Stafford or Her Majesty’s Revenue and Customs, they started to register for gift aid now, because of the three-year rule that the Minister has so far insisted needs to stay in the Bill, they would not have access to the Treasury’s small grants scheme until the end of the current Government’s term.
This morning, I was encouraged by the fact that the hon. Member for Congleton took the opportunity to put gentle pressure on the Minister. It was heart-warming to see, if I may say so. We sensed that the hon. Member for Portsmouth North shared one or two concerns about the Bill, and we know that the hon. Member for Stafford has one or two. Given the scale of concerns about the three-year rule, I hope there will be some equally heart-warming interventions—not only from the hon. Member for Congleton but from the hon. Members for Stafford and for Portsmouth North—to try to persuade the Minister, if not today then certainly between the end of Committee and Report stages, to exercise his influence in the Treasury and persuade the Government to re-write this part of the eligibility criteria. The Minister tempted me with an offer to join him in Bromsgrove at an event that he is hoping to organise for his constituents. I worry that he will not get the positive reception that he deserves at such a gathering, unless he
I am attracted to the possibility of travelling with the Minister. However, we would have to go in standard class; I do not know whether he would be up for that. Nevertheless, I urge him for his own sake, well in advance of that January meeting, to look again at the clause. The Institute of Fundraising is clear that this is potentially a big problem for many worthy charities that could benefit under the scheme.
Clause 2 contains restrictions that seem out of proportion to what we are trying to achieve. Those restrictions are not applied in other respects to much larger organisations that gather more money and simply want to use the gift aid system. The inclusion of such provisions underestimates the degree to which many small organisations will struggle to meet the “three years out of seven” provision, for example, which applies after they have already registered for gift aid. At that point, they must operate the gift aid system for three years and make a claim, which might prove difficult for some, depending on the nature of their fundraising in a particular year and how organised they are in beginning to work the gift aid system, even if they register for it. The provisions require organisations to operate the gift aid scheme for three complete years from setting up and operate it for three of the last seven years. Although some organisations may do everything efficiently and effectively in their first three years—they may set themselves up, get signed up and start collecting money via gift aid, and then show that they had made three years of claims—and do it at least in year four, for others it may take longer, because in their first three years they may have had other things to think about as they set up, with committees and training and learning about how to do things, and may only hear about the new system as they get going. So it may be two or three years into their existence before they begin to operate gift aid, and then they would have to do so for three years.
In some cases, people may be waiting for assistance for which the Bill should provide. Everybody here agrees that it is good to encourage small organisations to collect money and to encourage donation, but the first time some of them may be able to claim some of this money could be five, six or seven years into their existence. For new organisations that are just getting off the ground and trying to build up the service that they are providing, whatever their charitable purpose, additional help may be particularly important in those early years, because they have to build up a local reputation for themselves, build up the nature of their work and get more people involved who may be willing to give more money. Indeed, charities often have to show the kind of work that they are doing in order to encourage people to start donating.
For many of those organisations, there is already a lot to do without having to get completely signed up for this scheme. Yet this is the very time when, if they have managed to secure donations—perhaps of less than £5,000, so they may not get the full payment, even if
Mr Thomas: I do not know whether my hon. Friend has had the chance to reflect on the evidence from Kevin Russell, who is the technical director for Stewardship. In his evidence, in column 10 of the Official Report last week, he talked about the difficulties that non-conformist churches might have in persuading people to set up new churches. They engage in something called “church planting”. The three-year rule would be a disincentive for those newly planted churches to go independent, because they would have to wait so long to access the potential £1,250 under the scheme.
Sheila Gilmore: Indeed. That is an example from an organisation that, were it setting up something new, would have a certain amount of support from elsewhere. They would have the difficulty of not being able to make claims under the scheme, but, in terms of learning about it, they are probably slightly better placed than some of the even more independent, smaller organisations, and genuinely local organisations that have been set up to fulfil some local need that people have identified. A lot of good will and hard work goes into this sort of voluntary work.
Mr Thomas: My hon. Friend is making an important speech. Do Mr Russell’s comments not have further significance because he was one of the Government witnesses invited to appear before the Committee? If one of the Government’s own chosen witnesses has serious concerns about how the organisations in his care may suffer as a result of the three-year rule, does she agree that the Minister should take even greater cognisance of that?
Sheila Gilmore: The Minister should not just take cognisance of that; he should respond in light of the evidence that was given across the board—the verbal and written evidence that we have received and the discussion that has taken place in the voluntary sector. The only real reason constantly being given for ignoring all that is that we are trying to drive out fraud, which just seems extreme. Again, I hope that the Minister will look at the whole thing and decide whether, in his barrier of requirements that an organisation is to meet to allow their small donations to be topped up in such a way, all the elements are necessary. At the moment, other than perhaps the matching one—I was pleased to hear the Minister rolling back a little on that—the Government are still keeping all the others in place. It seems unnecessary to make them all apply.
To say that organisations have to be in existence for three years to prove their bona fides is one thing but, on top of that, there is the requirement to have had the three out of seven years making applications for gift aid. Why do we need all those requirements? Even if it were felt that we need to have some monitoring and control, and confidence that the organisation is bona fide, the Government have put in place something that is over-elaborate for the purpose that it will serve.
Mr Thomas: My hon. Friend makes a good point about the number of anti-fraud elements under the Bill. Does she remember the question asked by the hon. Member for Brentford and Isleworth at column 20 of the record, pressing the head of policy at the National Council for Voluntary Organisations on the three-year issue and whether she thought it was worth while? The head of policy made it clear that she thought that there was a reason to link the scheme to gift aid, but said that she was not sure how much additional protection the full three years provision builds in. Surely that is an important point of which the Minister should be aware. The checks that HMRC does through the linking to gift aid tend to be far more at the beginning of the process than two or three years down the line.
Sheila Gilmore: I agree with my hon. Friend that it is important to listen to the evidence given by an organisation that is working constantly with large and small charities to help them get off the ground. They need a great deal of help. The organisation is aware of the challenges that can be presented by such a system. The last thing we want is to put off people from accessing the scheme and, indeed, put them off being active in their communities and being part of such organisations. Management committees of charities sometimes find it difficult, especially when they are getting off the ground, when they are faced with a whole plethora of requirements. People will step away from such a regime. I have seen it happening in organisations in my constituency. People are quite enthusiastic to start with and like the idea, but when faced with far too much organisation and bureaucracy, they just say that it is not for them. It is hard to sustain the committee of a new charity. Everyone knows just how difficult it can be to urge people to become involved.
We do not want to put people off. If we were dealing with much greater sums of money, the case could be made for such an elaborate system. That is not to say that small amounts of fraud do not matter, but when dealing with such issues there must be proportionality—and that seems to be absent from the Bill.
Pat Glass (North West Durham) (Lab): I wish to make a few remarks about the additional bureaucracy that meeting the eligibility criteria would place on small community-based charities. We all support the principle behind the Bill, but the bureaucracy involved is not inconsiderable. It is almost impossible to get through in charitable trusts and administering charities anyway. As my hon. Friend the Member for Edinburgh East said, such organisations already have to struggle. In the evidence we heard last week, someone referred to using a hammer to crack a nut, and I want to make the Minister aware of how difficult the bureaucracy around charitable trusts can be.
I know from bitter experience that such cases are sometimes impenetrable. I remember starting work many years ago as a new assistant director in a north-east local authority and someone walking into my office and handing me—along with the curriculum review, the strategy for planning school places, the child protection review and all kinds of other important pieces of work—three large boxes marked “charitable trusts”. I subsequently learned that every new assistant director for the past
I really tried with that one, but my difficulty was that Bede grammar school—the wonderful Victorian building, covered in ivy, still exists just off the dual carriageway on the way into Sunderland from Durham—had become a co-ed sixth-form college many years previously. Legislation has overtaken the trust, and it is not now possible or moral to award a scholarship to the best boy, excluding all the excellent girls, and temperance studies is no longer part of the national curriculum—if it ever was. The nearest subject that I could find was RE, although I got bids from those teaching citizenship and other related subjects. I talked to the trustees and governors of the sixth-form college, who were understandably desperate to unlock the money to support brighter but poorer students. I also talked to the charity commissioner and to the council’s legal department. They all wanted to help, but nobody knew how to unlock all that money. I made some progress, but not enough. When the next assistant director started work, I packed it all up and handed it on to them.
That is just a demonstration of how difficult and impenetrable such things can be. I had neither the time nor the resources to deal with it properly. The problem was that there was a huge amount of money locked up in that one trust—and I had about 30 or 40 of them in the three boxes—and I could not unlock that money at all. If that is multiplied by the 152 local authorities and by the many schools in this country with similar charitable trusts containing lots of money that they cannot unlock, we could just about pay off the deficit.
Penny Mordaunt (Portsmouth North) (Con): The hon. Lady is making an interesting point. Bureaucracy is a major concern to many small charities. However, I am not sure about the point that she is driving at, because is it not an argument for this precise scheme, in that it will not pile bureaucracy on to a small local charity in the way that an open or closed grant programme would?
Pat Glass: I have to disagree with the hon. Lady. The new scheme will place additional bureaucracy on small local community charities that do not have the capacity to deal with it. That is the problem. I just do not understand why the Government are seeking to make this already worryingly complicated area yet more complex.
Mr Thomas: A series of charities have made clear just how difficult it would be if this subsection were enacted. Here is a promising ministerial career just beginning and possibly set to be almost irrevocably damaged, because the Minister will be known as the Minister for charitable red tape.
Pat Glass: I agree with my hon. Friend, but I do agree with the direction of travel of this piece of legislation. It is good in intent and I would not like to see it bogged down or to see charities not take advantage of it simply because they did not have the capacity to do so.
Finally, I want to make a personal plea. I talked this morning about the Dipton memorial fund in my constituency. We also have a small charity called the Cobweb orchestra. It exists to provide instruments and tuition to anyone who turns up. My husband has turned up a couple of times as he has quite a lot of musical talent. I always intend to take my violin out and go along one day because I have really good technique—but not an ounce of talent. It takes membership fees and collects small donations. Every penny of that money goes back into instruments and booking rooms and so on.
The Cobweb orchestra contacted me following the Chancellor’s announcement. It is concerned that as a result of the changes in gift aid it will lose £9,000. I am not entirely sure that it will, but because of the complexities I have not been able to get an answer. It is more than a year since I wrote to the Treasury. I have had one holding response and nothing more. I am abusing my position here on the Committee to ask the Minister whether he or one of his staff would meet with me and someone from the Cobweb orchestra to go through these concerns.
Mr Thomas: My hon. Friend will know from reading the exchanges last Thursday that we discussed the huge workload pressures HMRC will face as a result of cutting 10,000 jobs and the piling on of an additional scheme. The fact that she has not had a proper reply may be just one small symptom of that. Perhaps Ministers should have been a bit more sympathetic to our first group of amendments.
The Economic Secretary to the Treasury (Sajid Javid): I welcome you to the Chair, Mr Robertson. It is a pleasure to serve under your chairmanship. We have had a good debate so far on the clause. The hon. Members for Edinburgh East and for North West Durham made good contributions, and I will try to answer some of the points they raised in the next few minutes. It is clear that like everyone in the Committee they are passionate to ensure that we can do as much as we can to help small charities.
As the hon. Member for Harrow West set out, the third group of amendments seeks to challenge the three-year eligibility criteria for charities wishing to claim under the small donations scheme. This was another of the key issues raised by charity sector representatives during Tuesday’s evidence session and it is a point that has been raised with me by stakeholders directly. So it is right that we spend some time discussing this provision in the Bill. Let me start by setting out how this element of the clause is intended to work.
Eligibility for the scheme is defined by reference to gift aid claims made in the past by the charity. For a charity to be eligible to claim the top-up payment, it must have a minimum three-year track record of successfully
I heard the hon. Gentleman argue, as several have before him, that this means that new charities or charities that have not claimed gift aid in the past are unable to access the benefits of this scheme until they have built up a track record. The new scheme, however, is based on cash donations, unlike the gift aid scheme, and there are very limited donor records with a cash system, if any at all. That means the scheme will inevitably attract fraudsters. As with the matching rule set out in clause 1, the three-year qualifying period is an essential part of the scheme to ensure that it is adequately protected against fraud. HMRC sees a high number of cases of fraud every year. As we have discussed, a minimum of more than £10 million has been detected and stopped in each of the last two years.
Mr Thomas: During a series of efforts by the Opposition to draw the Minister’s attention to the Awards for All scheme, he has consistently failed to explain why the eligibility criteria for that scheme, which result in the same low level of fraud as under gift aid, could not be used for the Treasury small grants scheme. It is time that he explained why such a draconian set of eligibility criteria are required under this scheme, when other Departments are happy to allow much bigger sums to be allocated to small charities with less onerous eligibility criteria.
Penny Mordaunt: It is rare that I am able to say that I speak with authority on an issue in this House, but I was the director of two lottery distributors. I was bought in to crisis-manage the Community Fund and then set up the Big Lottery Fund. I have devised programmes like Awards for All and Heroes Return. I support the measure because the bureaucracy for the charity is less than any grant scheme—even the light-touch grant schemes of Awards for All. There are strict criteria, but the actual effort that a charity has to go through to make use of the scheme is much less than even those light-touch grant schemes.
Requiring charities to operate gift aid correctly for the three tax years before claiming payments under the new scheme means that the charity will have been subject to HMRC checking and tests. Therefore, HMRC can be more certain that the charity is bona fide for the purposes of claiming under the new scheme and that it is able to operate gift aid without significant errors.
One of the hon. Gentleman’s points, if I understood him correctly, was that charities will not be eligible unless they claim gift aid each year. To clarify, that is not exactly how the system will work. It recognises that many charities, although they are registered for gift aid with HMRC, do not claim each and every year. Charities do not need to claim for consecutive years; they need to claim for at least three years in the past seven, as long as the gap between claims is no longer than two years. Of the 100,000 or so charities that are registered with HMRC, 65,000 will claim in any particular year, but many will not claim every year. It is not the same 65,000 each year. Charities have an ongoing relationship with HMRC.
While the initial checks HMRC undertakes when a charity first registers for gift aid will enable some fraudulent charities or individuals to be caught, they will not catch all cases; nor will that enable any judgment to be made about a charity’s ability to claim gift aid correctly.
Mr Thomas: Why does the Minister think it reasonable that a charity that registers for gift aid can secure gift aid moneys in its first year of claims, but a charity that seeks to access funding under the top-up scheme has to wait at least three, possibly four and perhaps even seven years?
Sajid Javid: There are several reasons. One key reason why a charity can start to benefit as soon as they register for gift aid is that gift aid claims require information from the donor including their name, their address and a statement that they are a UK taxpayer. There is an audit trail, so when HMRC wants to audit claims from a charity it can follow that paper trail. Those requirements make it harder for fraudsters to take advantage, whereas in the small donations cash scheme, the cash element and the fact that no details are collected about the donor make it easier for bad people to take advantage if they are determined to do so.
HMRC needs to build knowledge of a charity and the people managing it to check that it is claiming gift aid correctly and to follow up on any causes for concern. There have been calls, as we have heard today, for a reduction in the three-year period, but reducing the lead-in time would increase the cost of the scheme and inevitably increase the amount of money that is paid in fraudulent claims.
Sajid Javid: No, I see as one of the key benefits of the clause the fact that it helps to tackle fraud. In the evidence sessions, a tapered eligibility period was suggested, in which either the limit to which a charity can claim would increase gradually, or the ratio at which the charity had to match gift aid to small donations would change over three years. I have looked at those options, and I think that they would introduce additional costs to the scheme and change the calculations of potential fraud. Most importantly, they would add complexity because a charity would have different limits or matching levels in different years. The charities involved will be
Cathy Jamieson: Has the Minister given any thought to the fact that there may well be some charities that do not have a gift aid record but can none the less demonstrate that they are bona fide charities that would meet the criteria in other ways, rather than new charities? I think that the Minister is concerned about new charities springing up and making fraudulent claims. Did he consider whether there is some way of allowing such bona fide charities to benefit from the gift aid top-ups sooner?
Sajid Javid: Clearly, when such issues were raised in my meetings with charity groups and other interested parties, we considered other ways of dealing with the matter. For the reasons I have set out, however, we need a system that balances the interest of the taxpayer with our desire to help charities.
Under this group of amendments, the hon. Member for Harrow West again referred to parent teacher associations, and he mentioned a certain public school. I think he was trying to make the contrast that it is easier for some schools or PTAs than others to raise money through gift aid or to benefit from this scheme. I draw his attention to a document published last year that he may not have seen. It is from HMRC and was specifically designed with some of his issues in mind. I do not know whether he has had a look at “Gift Aid and Payroll Giving”, but I will let him have a copy afterwards. It is detailed and easy-to-follow guidance that was developed by HMRC last August. I believe that, when it was published, it was roundly welcomed by schools and other organisations for its conciseness and for helping many more PTAs to claim. It is the kind of document that I shall distribute on my charity day in Bromsgrove in January, and I encourage the hon. Gentleman to hold his own charity day in his constituency and to take advantage of such documentation.
The hon. Member for North West Durham made some good points. She specifically asked about the Cobweb orchestra, but clearly I do not have the details of that case at hand. She mentioned the figure of £9,000 in lost claims, but I cannot go into that. She asked whether it would be possible to have a more detailed discussion, and I am happy to ask HMRC officials to meet her, if that would prove helpful.
In summary, I hope that I have clearly set out why it was necessary to include the provision. We must protect the Exchequer from fraud, but it is also important to protect the charitable sector’s good name from those who wish to exploit it. I agree with hon. Members that a balance needs to be struck between preventing fraud and allowing access to the scheme for bona fide charities. We have found that balance, and I therefore ask the hon. Member for Harrow West to withdraw the amendment.
My hon. Friend the Member for North West Durham gave the specific example of the Cobweb orchestra, and it was good to hear the Minister commit his officials to meeting her. My hon. Friend’s broader point was that small charitable organisations, such as the ones she mentioned, stand to lose out by not being able to access up to £1,250 under the scheme because of the harshness of the particular subsection.
I have emphasised the concerns of a whole series of representative bodies that speak for small and, indeed, larger charities about the subsection that we are seeking to delete. I did not mention—perhaps I should—the concerns of that excellent organisation Community Matters, which specifically focuses on the needs of small charities in our communities, or of the National Association for Voluntary and Community Action, which is another of what are termed infrastructure bodies for small charities. NAVCA also believes that existing charities that are already recognised by HMRC for tax purposes, by being registered for gift aid, should be able to receive payments for small donations without having to wait three or four years.
Our concern, which I have to say the Minister has not yet satisfied, is that the provision has been written into the Bill to create a cap on the level of expenditure on the scheme. If the Minister had been quite transparent and open about that, we would have at least understood that point. He did not convince us why a three-year waiting period is needed to get access to the small grants scheme but not for payments under the gift aid scheme. We will reflect on his arguments. I will not press the amendment, but I look forward, Mr Robertson, to catching your eye on amendment 21, which is a humble effort to get the Minister out of the hole he is in on this issue. I beg to ask leave to withdraw the amendment.
‘(a) It meets the management condition as defined in paragraph 4 of Schedule 6 to the Finance Act 2010;
(b) It has submitted at least one Annual Return or Annual Update to the Charity Commission.’.
Suggests an alternative criteria to make it easier for smaller charities to be eligible under GASDS.
As I said, this is a probing amendment that offers the Minister a more reasonable set of hoops that charities might be asked to jump through to secure the objective of minimising fraud in the scheme. It would insert two requirements into the eligibility criteria.
sounds fiendishly complex but it is the fit and proper persons test which is part of the work that charities already have to do to achieve gift aid registration. Unlike the horrendous 60 pages of guidance or the 80 web pages of guidance my hon. Friend the Member for Leeds East drew to our attention which one has to go through to claim gift aid in the first place, the fit and
The fit and proper persons test is a concept that charities are familiar with. Many organisations recognise that it is perfectly reasonable to require the management of a charity to demonstrate its capacity to manage the charity’s finances and activities in a fit and proper way. We seek to go a little further, understanding the scale of the Minister’s slightly disproportionate concern about the level of fraud in the charity sector compared with other parts of the economy where Ministers do not seem quite as bothered as he has been. To give the Minister and colleagues on the Government Benches some comfort we also suggest that charities should have to have completed at least one annual return and update to the Charity Commission to secure access to the scheme.
The Charity Commission is a body that is familiar to the vast majority of charities, whether or not they have to secure registration or not. Deservedly or not, it is a less intimidating body than HMRC. It is seen as being slightly friendlier. The merits of our humble efforts are that they would reduce the bureaucracy and the number of hoops that charities would have jump through to gain access to the scheme, and allow more small charities to claim. The Minister said that there was unlimited money to claim from under the scheme for an unlimited number of charities. If that were indeed the case—there is some scepticism among Opposition Members that that is so—the hon. Gentleman ought to be at least sympathetic to the amendment.
I remind members of the Committee of the example of the parent teacher association that is not registered for gift aid, but is registered with the Charity Commission. Such a position potentially offers a greater incentive for parent and teachers, such as the Friends of Newton Farm in my constituency. Britain’s best primary school is not registered for gift aid at present, but it makes a difference to the surrounding community. It is not registered for gift aid, unlike Eton, which was the provocative contrast that I sought to present to Government Members. Our proposal would reduce the level of unfairness that Ministers seem willing to tolerate, so that charities can gain access to the small amount of money that they can claim under the small grant scheme.
I humbly present the amendment to the Minister. I accept that it is not 100% perfect, but I suggest it as a potential route for him to explore—if not today, then between the end of Committee stage and Report when, hopefully, he will return with far less pernicious eligibility criteria, which I hope are based on amendment 21.
Sajid Javid: Amendment 21 sets out alternative qualification criteria for charities under the new scheme. It is something that we have examined; we considered alternative measures to stop fraud under the scheme. We wanted views on the issue from the charitable sector so we asked in our consultation earlier in the year whether there were any other proposals. However, no workable ideas were suggested. While I thank the hon. Gentleman for his proposal, it is something that we have considered already and, unfortunately, it would not fall into a workable category. I shall explain why.
Not all charities are required to register with the Charity Commission or its devolved counterparts. I remind members of the Committee that the regulation of charities is a devolved matter and that the Charity Commission is responsible only for regulation in England and Wales. The devolution of responsibility means that there are different criteria throughout the United Kingdom for the regulation of charities. There are different definitions of “charity”, different thresholds for registration and different requirements for the filling in of annual returns.
In England and Wales, for example, the smallest charities are not required to register with their regulator. All charities with income below £5,000 are exempt from registering. That means that the very smallest charities—those that could benefit the most from the Bill—would be excluded from the scheme, and I am sure that that is not the intention of the hon. Member for Harrow West. That group of charities can register voluntarily with the Charity Commission but, for many charities, the process of registering with the Charity Commission and completing an annual return would be more time-consuming than registering with HMRC for gift aid. That option also brings with it the benefit of gift aid income for that charity.
That example also highlights the fact that the amendment would not work, as it would fail to take account of the devolved nature of charity regulation. As drafted, it would only allow charities that are required to register with the Charity Commission of England and Wales to claim under the small donations scheme. I am not sure whether the hon. Members for Edinburgh East and for Foyle support the amendment, but, if they did, and it was actually made, it would mean that the charities in the devolved nations that they represent would not be able to benefit from the Bill.
If we were to expand the provision to tie the eligibility to the other devolved regulators as well, the differences in regulation would mean that there would be different treatment for charities operating in different areas of the UK. That is an impractical suggestion that would only increase complexity and the administrative burden for charities, HMRC and the charity regulators. That is not the intention of the Bill. I maintain that, for the reasons I set out in the debate on the previous set of amendments, it is necessary to keep a link between the gift aid scheme and the new scheme to prevent widespread fraud. I therefore ask the hon. Gentleman to withdraw his amendment.
Mr Thomas: I am grateful to the Minister for taking the time to consider our amendment. We wanted to suggest to him a one-year time frame for which charities would have to wait in order to access the scheme, hence the suggestion of one annual report and/or one annual update having to be filed. We recognise that the Minister wants to see charities undergo an initial inspection, hence the reference to the fit and proper person test.
We have not heard, in either the Minister’s answer to this amendment or his answer to the previous set of amendments, why there is a requirement to have claimed gift aid in three out of the previous seven years. Why not two years? Why not one year? I hope that the Minister will reflect on that, because, as a number of hon. Members of all parties on the Committee will recognise, there has been consistent concern about the three years within seven requirement in clause 2, and
That was the essential purpose behind this humble proposal—a change in direction from the Minister and his team. I recognise the drafting complications that he quite properly set out in his answer. I will beg leave to withdraw the amendment, but, in so doing, I urge the Minister to use the time between now and the end of Committee to reflect on whether three years in seven are required, as opposed to one year or two years.
Mark Durkan (Foyle) (SDLP): I note that my hon. Friend is minded to withdraw the amendment, which I would have been happy to support, although it would also require some consequential amendments, as the Minister has pointed out. The relevant committee in the Northern Ireland Assembly has said that it would be minded to support a legislative consent motion for this Bill in the Assembly, but has also made it clear that it would want that legislative consent to extend to considerable amendments, including a number that clearly relate to what he has been talking about.
Mr Thomas: I welcome the comments of my hon. Friend and I am grateful for his bringing in that perspective from the Northern Ireland Assembly. I welcome his willingness in principle to support our amendment. Given my hon. Friend’s interest and the specific concerns of Northern Ireland, I hope that the Minister will take an additional interest in the possibility of shifting down from a three years out of seven requirement to perhaps a two or one year requirement. Nevertheless, because of the clear drafting issues with the amendment, which we knew about when it was tabled, I beg to ask leave to withdraw the amendment.
Amendment is designed to probe how strict the scheme should be in excluding charities which have been penalised by HMRC. Would also be designed to probe the anti-fraud measures taken in relation to charities.
Amendment is designed to probe how strict the scheme should be in excluding charities which have been penalised by the HMRC. Would also be designed to probe the anti-fraud measures taken in relation to charities.
Mr Thomas: Again, this is a pair of probing amendments. We want to probe the Minister’s intentions regarding any penalty that charities might incur. Ministers clearly think that there is a considerable risk of fraud, but many charities worry that the level of bureaucracy and the potential for mistakes in the claims that they make is equally considerable. This is an opportunity for Ministers, whatever they and their Back-Bench colleagues may think about how easy it is to register for gift aid and
I also gently encourage the Minister to consider the discussions that the Committee will have when discussing clauses 6 to 9 and the whole new concept of “community buildings”, which is completely unfamiliar to the vast majority of charities and charity lawyers. It is novel and potentially very complex. We know that there are no new resources within HMRC to dedicate to explaining the small grants scheme. The Minister may well be influential enough—albeit in his Back-Bench capacity—to persuade HMRC to come along to his charity day. I suspect that it would be unreasonable to think that 650 such charity days with HMRC in attendance could take place before the scheme is established. While charities in Bromsgrove may benefit from coming along to his session with HMRC officials, it is simply not realistic to think that there will be enough time before the scheme comes into existence for every charity that may benefit to have enough exposure to HMRC properly to understand all the different elements of the eligibility criteria, particularly the new concept of “community buildings”.
The Minister may want to dwell on the language that he has been using in the course of our debates. Every speech has been peppered with references to fraud and the need for anti-fraud measures. As I have made clear, we all want fraud to be prevented as far as possible. However, an unintended consequence of the Minister’s speech being littered with references to fraud in the charity sector and among organisations claiming gift aid is that it may further underline the worry that if people get a claim wrong, they will be considered to be putting in a fraudulent claim.
I give one further example of the potential for concern among charities. In his evidence to the Committee on Tuesday, the Minister talked about the existence of the £50 note in a bucket collection, and how, if there was such a note in a bucket collection, it would probably have come from just one person and would clearly not be eligible. I do not know whether it is the Minister’s intention for HMRC to carry out spot checks on whether £50 notes are being counted, but there is the possibility that a group of people might make a collective donation with a £50 note after pooling their £10 and £20 notes. In that case, it is not clear whether that would be regarded as eligible to be counted towards the £5,000 maximum sum—a small example of the potential for charities’ concern.
Susan Elan Jones (Clwyd South) (Lab): By the same token, some sharp-eyed person who has taken a great interest in what our Committee has been deliberating on might spot a £50 note and think, “I know that £50 donation will not be eligible under this scheme. What if, in its place, I put two £20 notes and a £10 note?”
Mr Thomas: My hon. Friend raises an interesting conundrum for the Minister to ponder. We might think that these series of questions are relatively minor in the great scheme of things for a small charity to reflect on.
Sir Tony Baldry (Banbury) (Con): Some bits of the Bill are complex. May I assure the hon. Member for Harrow West, who is just leaving his place, that the Church of England, which after all has 16,000 churches and therefore 16,000 charities, is perfectly confident that it will be possible to write guidance that will make it very straightforward for charities to comply with this? After all, by definition, every charity that is involved with this scheme is already registered for, and working with, the gift aid scheme. This provision just builds on that scheme, and we ought to try and remember that it seeks to enhance it.
Every Sunday, I have a bit of a crisis. My crisis on a Sunday comes at that bit where the clergyman says, “Peace be with you”. The crisis is, do I shake hands? How many hands do I shake? Do I kiss my wife? If I kiss my wife, do I have to kiss other members of the congregation? Do I have to kiss the vicar? At the same time, I have to fill in my gift aid form, because that is usually when the collection comes around, or near enough, with the offertory hymn.
In the Bill, we seek to build on what already exists. There is a danger that Opposition Members are trying to complicate what the Treasury is generously doing, which is giving charities another £100 million on the gift aid scheme that they would not otherwise have got. Organisations up and down the country will benefit considerably.
The Church’s working relationship with HMRC has been, and is, extremely good, and we have always found HMRC to be positive and understanding when talking to us to resolve problems. That has been the case both for individual churches and for the Church Commissioners, which, after the Wellcome Trust, is the second largest charity in the country.
Cathy Jamieson: The hon. Gentleman speaks with great knowledge about matters that concern churches, but does he accept that the points we have been making mainly relate to small charities, which do not have the same structures or practices as churches? Some of the difficulties that we are expressing particularly concern small charities, which desperately need the money in the same way as his own church congregation and others would.
Sir Tony Baldry: In today’s world of websites, it is easy to put perfectly straightforward guidance on websites for anyone to see, so I do not think we should allow ourselves to be daunted by the thought that charities
Sajid Javid: The Opposition have set out what they describe as a probing amendment to see how strict the scheme should be in excluding charities that have incurred penalties from HMRC. It may help if I start by setting out our rationale for including that provision. If a charity makes a false or erroneous claim for gift aid or for the top-up under this scheme, it may be charged a penalty. If that happens, the charity will cease to be eligible for a top-up payment under the scheme for the tax year in which the false claim for gift aid or top-up payment was made, and for the next two years.
We have introduced that condition because we need to apply rules that will encourage good compliance by charities. The condition will ensure that the scheme is operated properly and is protected against abuse. If a charity does not comply with the gift aid rules, it is reasonable to assume that it may not be complying with the rules of the gift aid small donations scheme. HMRC does not hand out penalties lightly; only where a charity has not taken reasonable care, or where there is deliberate error in claiming, will a penalty be issued. Our experience of the gift aid scheme is that many penalties are suspended, because we take into account the fact that a charity’s breach of the rules may have been completely unintentional. HMRC’s intention in imposing penalties is to encourage good compliance, and a suspended penalty may be enough to achieve that.
The hon. Member for Harrow West mentioned the example of someone who made a cash donation of a £50 note, and he asked what would happen if, despite the charity’s best efforts, HMRC picked up on that and said that it was clearly more than £20 from a single donor. That is not the kind of thing for which HMRC would impose a penalty. It is really about what HMRC would consider serious non-compliance with the regulations.
Mr Thomas: Perhaps with hindsight, the £50 note was a poor example, but surely the Minister must recognise that the complexity of the provisions concerning community buildings is a real concern, given their novelty for many charities. How will he ask HMRC to handle mistakes that are made by small charities wanting to take advantage of this scheme if they fall foul of the various parts of the community buildings provisions?
Sajid Javid: Clearly, charities that wish to take advantage of the community buildings provisions would need to be more involved with the eligibility criteria. The key aspect of doing that properly for the charity is the guidance that will come when this Bill is passed. I mentioned earlier the excellent example of good guidance by HMRC for schools related organisations. I would expect similar high quality guidance to come about as a result of the Bill. When the Bill becomes law and charities start to take advantage of its provisions, perhaps in the first year issues will be drawn out and so guidance can be updated. For charities that remain unclear, even with the guidance, or which have a unique issue that concerns them, there is an HMRC helpline. Many larger charities have a relationship with HMRC. Even where they do not there is a helpline they can call to get immediate clarity.
Mr Thomas: Perhaps the document that the Minister has mentioned a couple of times will be to small charities what IPSA’s guidance is to Members of Parliament: extremely helpful, but nevertheless having somewhat complex rules. Although it is incumbent on all of us to do our level best to adhere to IPSA’s rules, every Member will recognise the scope for mistakes and error and for reputations to suffer as a result. There are already 80 pages of website guidance on adherence to gift aid, and there is more guidance to come from the Minister. He must accept that there is the potential for real mistakes and genuine misunderstandings to occur. I ask him again: how will he handle such mistakes?
Sajid Javid: I think the hon. Gentleman would accept that no matter what system is used, there will be eligibility criteria. There will be hurdles for charities to clear to fulfil those criteria. There is always the potential for a charity to make a mistake. When mistakes are made there needs to be some kind of penalty process. The key is that that penalty process, operated in this case by HMRC, needs to be proportionate and to take into account the individual circumstances. I think I have given enough examples during the debate of how HMRC intends to approach this and how it will deal with gift aid. Over £1 billion is claimed in gift aid each year but only a handful of penalties are handed out. Many of those are suspended penalties. That is probably a good guide to the number of penalties that may result from this new scheme.
Mark Durkan: Obviously, the Minister and the Treasury have felt the need to provide some element of ineligibility where a charity falls foul of HMRC’s systems or standards. Did they not consider any other issue in relation to the standing of charities that might make them ineligible?
Mark Durkan: It occurs to me that sometimes, decisions have been made about the standing of a body that has been established as a charity and has taken money as a charity. Atlantic Bridge was one example. As I understand it, it was the Charity Commission that said it was not sure that the purposes for which that charity was spending money were appropriate. I am not sure what subsequent action HMRC took in relation to gift aid or anything else.
More currently, the Minister mentioned the differences between the different charity commissions and the different statuses for charities. There is controversy in England at the minute about the Charity Commission’s attitude to the Plymouth Brethren. I am not sure that that attitude is replicated in Northern Ireland. Is HMRC saying that it decides which churches are charities and ignores the Charity Commission, or does it at any stage take account of the Charity Commission’s concerns about the standing or conduct of charities?
Cathy Jamieson: Before the Minister moves on to another issue, I want to probe the point he made on mistakes and penalties. What are the most common mistakes that charities have made in relation to gift aid, which may well be replicated and should be highlighted so that people do not make them?
Mr Thomas: If the Minister does not want to give examples now—and in the light of his interest in holding conferences for charities, so they can understand all the different tax reliefs and their eligibility under this scheme—will he ask HMRC to organise a number of similar one-day meetings in the major urban centres, in order to allow members of representative bodies that are concerned about this clause to come to one of those sessions? In those sessions, HMRC could set out in detail how to access the scheme, who will benefit, common mistakes that charities make when they claim for gift aid and things to avoid when they are trying to understand whether they are eligible for the community buildings part of the Bill. I fear that the hon. Member for Banbury is a little complacent about the scale of difficulty people face in trying to access 80 pages of website guidance and the numerous other bits that are coming through. Why not, as part of reassuring charities on this issue, commit to a series of one-day conferences to allow HMRC to explain in detail what is required?
The hon. Gentleman asked about HMRC working with charities to ensure that charities can take full advantage of the scheme, which we would all want to see. He may be interested to know that HMRC is planning a four-stage publicity campaign over the next few months to alert charities to the new online gift aid system and the small donations scheme. As well as media publicity, HMRC is planning to write in the new year to every charity that has claimed gift aid within the past few years to tell them about the online gift aid system and the new scheme. In addition, it has regular meetings with charities as well as with some of the representative bodies. I am sure the hon. Gentleman welcomes that engagement.
The Bill is complex. Government Members may not think it as complex as we have suggested, but many small charities have understandable concerns. Why not have a small number of set-piece occasions, at which any of those involved with small charities who are worried about what they have to do under the legislation could speak in person to a representative of HMRC? The Minister will make that happen for charities in his constituency. Why will he not make it happen for many other small charities?
Sajid Javid: I have already explained HMRC’s engagement process with regard to the new online system and small charitable donations, and that process is extensive. HMRC has an outreach team that travels, on an ongoing basis, throughout the UK and covers many issues, which will clearly include this new Bill.
The hon. Gentleman mentioned the event that I plan to hold in Bromsgrove, which is a funding day—targeted for January—to encourage charities to make the most of the help available. He asked why HMRC does not do the same in other constituencies. It is an event that I will plan as a constituency MP. HMRC may or may not be part of it; that is a decision for HMRC to make. If he wants more such events to take place, I suggest that he take up that idea with the leadership of his party, as many coalition Members have done, and encourage Labour Members to hold similar events, which I am sure would go down well in their constituencies. If he is a bit stuck for ideas on how to organise such events, I am happy to arrange a session with the aides in my parliamentary office, so that he can work-shadow them for the day and learn about how to help charities.
On fraud, HMRC pays about £1 billion a year to charities under the gift aid system, and such a large amount inevitably attracts fraudsters who will, and do, attack any payment system, looking for weaknesses, so we have to minimise our vulnerability and protect the taxpayer. In earlier debates, we amply covered the need for measures to protect the scheme against fraud, so we do not have to go through that again. I hope hon. Members agree that we cannot leave the Exchequer open to fraud and abuse. It is our duty to protect taxpayers’ money and ensure that it is spent correctly. I therefore ask the hon. Gentleman to withdraw the amendment.
The Chair: Before I call Mr Gareth Thomas, let me make clear my position on coffee. Although I am not a stickler for the rules regarding coffee, I do not expect the Committee Room to be turned into a coffee house, so please take note.
Mr Thomas: I am grateful to the Minister for taking the time to respond to several of the concerns that small charities have asked us to mention. Nevertheless, I am struck by the sense that it would be worth while for him
The Chair: Before we discuss the next amendment, let me make it clear that it is not my intention to call a stand part debate. We have covered the clause fairly well. Having said that, I will show a certain leniency in the next debate if some subjects are raised. If that is all right with everybody, we will carry on.
‘(c) a penalty is not to be regarded as having been imposed if all of the penalty is suspended (or the decision that a penalty is payable is cancelled on appeal); but this does not apply to a suspended penalty that subsequently becomes payable.’.
This amendment provides that a suspended penalty is not to be regarded as imposed for the purposes of the rules about the meaning of “eligible charity” unless it subsequently becomes payable.
I have tabled the amendment in response to worries raised on Second Reading by the hon. Member for Foyle. I am grateful to him for his constructive comments on the detail of the Bill. I explained in the debate on the previous amendment that the condition has been introduced because we need to apply rules that will encourage good compliance. It will ensure that the scheme is operated properly and is protected against abuse. If a charity does not comply with the gift aid rules, it is reasonable to assume that it might not be complying with the rules of the gift aid small donations scheme.
The issue raised by the hon. Member for Foyle on Second Reading was about the possibility of a charity that had a penalty suspended or lifted on appeal being caught by the rule. That was not the intention of the provision so I have tabled the amendment to clarify the position. It puts beyond doubt the fact that the charity’s eligibility will be affected by a penalty only if the penalty finally becomes payable. Proposed new subsection (4)(c) sets out that a penalty suspended or cancelled on appeal, unless it later becomes payable, will not affect eligibility.
I hope that the proposal reassures members of the Committee that we do not intend to exclude those charities that have had penalties suspended or removed on appeal, and I hope that they will support the amendment.
Mr Thomas: I will listen with particular interest to what my hon. Friend the Member for Foyle has to say when he catches your eye, Mr Robertson. My initial instinct is that the amendment would be helpful. I welcome it, albeit with the caveat that I shall listen with interest to my hon. Friend.
The amendment underlines the complexity implicit in the way in which the Bill is drafted. It would be good to hear from the Minister in his winding-up speech a couple of real-life examples of when the proposal might be helpful. I understand that the amendment has been
It would be helpful if some of the 150 members of staff that HMRC will have in its charity section—the charity outreach team—organised several meetings that small charities can attend, at which they can properly understand the ins and outs of the scheme. It is really not good enough for the Minister to say that he is happy to make representations to HMRC that some of its staff should attend a meeting in his constituency. He has a responsibility to make sure that small charities throughout the country have the opportunity to benefit from face-to-face meetings with HMRC experts. Perhaps that argument is why we are the party of one nation, and his party can no longer claim that mantle. I look forward to listening to my hon. Friend the Member for Foyle.
Mark Durkan: I welcome the amendment and the terms in which the Minister has addressed it. I am a politician who can take yes for an answer, and the Government have taken on board a legislative issue that I raised. The gift aid scheme’s penalty provisions, as couched in the Bill, are perhaps too sweeping. They are not qualified in any way that would allow for the fact that a penalty could be suspended or overturned on appeal, and the Minister’s amendment sensibly corrects that.
I credit the Government with listening to what some of us said on Second Reading, and I encourage the Minister to listen to some of the other practical concerns and criticisms that many of us are expressing about some of the other provisions. The amendment is about tidying up and smoothing aspects of the Bill that could otherwise be jarring and difficult for charities, and I hope that the Minister will extend the same consideration in some other areas.
The hon. Member for Harrow West asked about the kind of errors that could lead to penalties. They are the common mistakes that are made in the gift aid process: computational errors, failure to obtain valid gift aid declarations and late claims—those made out of time. The amendment seeks to ensure that if HMRC believes that one of those, or another, mistake might have been made—sometimes, unfortunately, they are intentional acts rather than mistakes—but on further investigation realises that something was incorrect or that there was bad information, it is able to relieve the penalty in a way that does not affect the charity or its ability to claim under the terms of the Bill.
The hon. Member for Harrow West also mentioned publicity. The HMRC publicity campaign for the gift aid online system and the scheme that we are discussing today is extensive. Writing to every charity that has claimed gift aid in the past three years is an excellent
Mr Thomas: The Minister said that HMRC plans to write to charities that have previously applied for gift aid. As I understand it, part of the point of the top-up grant scheme, as Ministers have described it, is to encourage more charities to apply for gift aid. Therefore, what publicity campaign and level of correspondence will there be for the almost 300,000 charities that have not claimed gift aid in the past year? Will they be written to by HMRC? Surely they should be.
Sajid Javid: The hon. Gentleman is right. Part of the scheme’s attraction is to get more charities interested in gift aid and therefore in this scheme. If they are not currently on HMRC’s database, clearly they will not receive a letter, but hopefully they will be attracted by the extensive media campaign that will accompany this measure.
Mr Thomas: Surely it is not rocket science for somebody from HMRC, at the Minister’s instruction, to get on the phone to the Charity Commission or the Office of the Scottish Charity Regulator and ask for databases of charities. With e-mail addresses, HMRC might write to charities about this new measure.
Sajid Javid: HMRC has various sources for getting information on charities. The Charity Commission for England and Wales, the Charity Commission for Northern Ireland and the Office of the Scottish Charity Regulator are all sources. There are also other representative bodies of charities. We saw some of them in the evidence sessions. There are many others. We can rely on HMRC’s working with them to ensure that all the charities that can benefit from the scheme have the opportunity to do so.
Mr Thomas: I want to reflect on some comments that John Hodge from the Law Society of Scotland made in the evidence that he gave us last Tuesday. He raised concerns about the drafting and purpose of clause 3(2), which talks about how a small donation made to a charity
cannot be treated as a small donation. He pointed out that a charity has to apply all its funds for charitable purposes. He wondered whether Ministers were intending that small donations be applied only to primary charity purposes—for example, the food going to a homeless person rather than towards the administrative costs of the charity that was ensuring that the food was dispensed
What is the purpose of subsection (2)? If someone as distinguished as Mr Hodge is not clear that he understands the purpose behind a particular subsection, it underlines concerns about the complexity of the Bill, and HMRC will have to be extremely active in explaining the purpose of the different parts of the Bill to the small charities not currently claiming gift aid, as well as those that are claiming.
Lastly, I want to ask about subsection (3), which specifically references the Trustees of the National Heritage Memorial Fund; the Historic Buildings and Monuments Commission for England; the Trustees of the British Museum; and the Trustees of the Natural History Museum. I did not get—the Minister will forgive me for saying so—a clear answer when I asked about the motivation behind subsection (3). I recognise that it is in line with gift aid provisions, as he stated. However, has there been specific lobbying by the four organisations concerned? They are somewhat different in size from the types of charities that Ministers once said would be the prime beneficiaries of the scheme, although I do not suggest that they should not be beneficiaries. Interestingly, one of the four organisations that is so affected, English Heritage—the Historic Buildings and Monuments Commission for England—has been subject to cuts of some 32%. Did Ministers include it in the list as some small compensation for the scale of the cuts that it faced? It would be good to hear from the Minister the purpose of subsection (2). Is he absolutely confident that he and his officials have drafted it right? Will he set out in more detail the purpose and intent behind subsection (3)?
Sajid Javid: Clause 3 sets out the meaning of small donation for the purpose of the scheme. A small donation as defined in the Bill means a gift made to a charity, provided that it meets each of the conditions set out in the schedule to the Bill. The clause states that membership fees cannot be small donations. A small donation must be used by a charity for charitable purposes, and any part of a donation that is not used for charitable purposes does not qualify for the top-up payment.
In answer to the hon. Gentleman’s question, the purpose of subsection (2) is to exclude from the definition of small donation any income that is used by a charity for non-charitable purposes. For example, a charity may make a loan to a trustee, which is a non-charitable purpose. If funds were raised but used for a non-charitable purpose, that portion would be excluded from eligibility under the terms of the scheme.
Mr Thomas: Just to be clear, does that mean that administrative costs are not a problem, and that there is no need for two separate accounts to pay for the food that goes to a homeless person and the administrative costs of the homelessness charity? It would be good to get 100% clarity on that. Is the loan to a trustee the only example that the Minister and his officials can think of where subsection (2) would apply, or are there other similar examples? For the benefit of those who seek to understand the legislation, it would be useful to have further clarity if there are other scenarios in which subsection (2) would apply.
Sajid Javid: The example of a loan to a trustee is the only one I can think of. For clarification, administrative costs are not caught by subsection (2), because they are a legitimate use of charitable donations.
Cathy Jamieson: I am interested to hear the Minister say that the loan to a trustee is the only example that he can think of. Does he have information on how many times that has happened? In my experience of being involved in running charities, it is not something that happens regularly.
Sajid Javid: As the hon. Lady said, I do not believe that it happens regularly, but I do not have any numbers at hand to show how often it happens. I am happy to try to find out if there is more information available from HMRC on that. If such information is available, I will see whether I can provide it.
The hon. Member for Harrow West asked about the four organisations that are mentioned in subsection (3). These organisations are listed to provide absolute clarity in the Bill. They are all state-created organisations and as such, and in accordance with the regulations under which they were created, they are not permitted to use money for unauthorised purposes.
Mr Thomas: The Minister will remember the evidence from David Warrellow from the National Trust, which maintains similar sorts of buildings to those maintained by English Heritage. As a result of the Government’s proposals on community buildings, he believes that the bulk of National Trust properties will not be able to claim under the Bill. If clause 3(3) stays in the Bill, as the Minister clearly intends it should and we would not want to prevent, it creates another form of division between National Trust properties on the one hand and English Heritage properties on the other.
Sajid Javid: I do not believe that this subsection creates a division. It recognises an established fact: as the law currently stands, these organisations are not permitted to use money for unauthorised purposes and so they are excluded from the provisions of clause 3. The requirement for the donation to be used for charitable purposes does not apply to the trustees of certain national museums or the Historic Buildings and Monuments Commission for England. The reason for this is simply to maintain consistency with the gift aid rules.
‘cheques, text or internet donations’.
This would allow donations other than just cash donations to count towards the sum on which charities can claim.
The amendment essentially seeks to bring the Bill into the modern era in that it would allow small donations to be counted if they arrive in the hands of charities in a slightly different form from the very restricted manner set out in the Bill. Many people who donate relatively small amounts to charity increasingly do so by cheque, text or via the web. It is incumbent on the Minister to explain why these donations should not count towards the £5,000 cap. I believe it was the hon. Member for Amber Valley who raised the issue of our potential ability to make a donation to a charity when we put some additional money on our Oyster cards. At the moment, as he knows only too well, that would not be permissible under the terms of the Bill. It would be good to hear from the Minister why he feels the need to be so old-fashioned in outlining such a limited definition of small donations.
“HMRC should have the power to allow alternative forms of payment in the future, certainly once the scheme has bedded down and once the other technologies that are coming in are more frequently used for charitable donations.”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 43, Q69.]
Surely we ought to give serious thought to taking on board Mr Warrellow’s comments. John Low, the chief executive of the Charities Aid Foundation, made a similar point, making reference to the need for slightly more imaginative drafting of this part of the Bill.
Cathy Jamieson: Will my hon. Friend consider whether the Bill, as it currently stands, covers such circumstances where, for example, someone decides to give a £20 gift voucher to the local food bank, perhaps because they want to ensure that the money is used directly to benefit individuals in those charitable purposes? More and more supermarkets now have cards on which people can put money, and people may wish to make donations that way. As currently drafted, does the Bill deal with that, or is that something that my hon. Friend thinks ought to be looked at?
Susan Elan Jones: In a previous discussion, the Minister, in response to a point made by my hon. Friend the Member for North West Durham, said that if one made a donation in any currency—euro, dollar, yen or whatever—then that would be acceptable in the current scheme. It seems a bit peculiar for all of them to be acceptable, when it is not possible for a donation to be made in British pounds by cheque, text or via the internet. Does my hon. Friend agree?
Mr Thomas: My hon. Friend makes a very good point. I urge the Minister to listen to the intervention and explain why he proposes to be such a dinosaur on this matter. I recognise that there are one or two other issues that are linked to the type of donations permissible. Perhaps, given how directly they are related, it would be permissible to reference them now. The most pressing issue for discussion relating to the schedule, particularly on how a donation might be made, is whether the £20 figure is too low.
Mr Robertson, you and other members of the Committee will be aware of the considerable concern in the House about the activities of payday loan companies. Let us imagine a scenario in which those payday loan companies come together and discuss how well all their businesses are doing. They are in a celebratory mood and think that they ought to make a donation to a charity. They are walking past the local citizens advice bureau or debt advice agency and they decide to make a small donation to them. If they are the chief executives of those companies, £20 will not be a particularly large amount for them to donate. They may well want to donate £50 or £100. Why should larger sums of money, but still relatively small in the context of their salaries, from the more well-off not be permissible under the terms of the Bill?
The scenario that I have described of the chief executives of payday loan companies coming together and meeting is not an unrealistic one. We know that it has happened and that it has happened recently. Indeed, we know that it happened at the Conservative party conference, where payday loan company chief executives paid—would you believe?—£1,250 for the privilege of meeting the Minister and a series of other people. It is possible that they emerged from meeting the Minister, having discussed the Bill, and thought, “Let us go away and donate some money to charity.” Under the terms of schedule 1, in order to allow that citizens advice bureau or that debt advice agency to benefit from their donation, they would have had to limited their donation to just £20. When replying to amendment 26 and in the more general debate on schedule 1, I ask the Minister to consider why the £20 figure is so low. Why are those on bigger incomes, who give proportionately more in small cash donations, not allowed to give a higher sum than £20?
Cathy Jamieson: I want to highlight an issue that charities have raised with me that relates to the sad circumstances of funerals, where charitable collections may be taken. In such cases, people may well put a cheque in a box for the charity. They may not be in a position to fill in a gift aid form and it would not
Mr Thomas: My hon. Friend makes a good point, and that is one of the glaring inconsistencies that will be permitted unless the Minister is willing to show some imagination and to allow or encourage a change to the schedule as drafted.
The Opposition’s concerns can be gently summarised as follows. Why does the Minister want to stay a bit of a dinosaur in terms of the way in which he limits small cash donations? Why should those on larger salaries, for whom £20 is neither here nor there and who want to donate a larger sum in cash, be denied the opportunity to help charities to the extent that they would like?
Nigel Mills: It is a pleasure to respond to the amendment. I am sorry to disappoint the hon. Member for Harrow West, but I cannot support the amendment. However, I do have some sympathy with the principle that he is trying to establish. We tested the issue quite thoroughly during the evidence session last week, and I was persuaded by some of the Minister’s arguments that, for some of what is listed in the amendment, it would be possible to get the gift aid details from the donor. I am concerned, however, that we locking the Bill purely into cash. We may find in a few years’ time, or perhaps a bit less, that people will start to use cash less and will have some other electronic means that may not fall into the definitions in the amendment, which is why I cannot support it.
I can think of one current example. Coming through St Pancras station yesterday, I saw a box into which people can deposit Oyster cards with remaining credit that they no longer need, and Railway Children gets the money.
Fiona Bruce (Congleton) (Con): May I just say that my son is currently studying abroad in the Netherlands where apparently all outlets, businesses and so forth have to operate and provide services on a cashless basis, and so basically he does not carry cash but simply a card?
Nigel Mills: I am grateful to my hon. Friend for that intervention. That is, of course, the point. My point was that in a station someone can now donate money to the Railway Children charity by dropping into a box an Oyster card that has any money left on it. I think that that raised just under £5,000 a couple of years ago for that charity; that was the last detail that I could find. Coincidentally, £5,000 is a useful number for this debate. However, I cannot see any logical way in that situation whereby the charity or Transport for London could get me to sign a gift aid declaration, given that I had bought an Oyster card, did not give any details and was just donating the whole card. It is clearly an equivalent to a cash donation.
I suspect what we will find as the years go by is, as my hon. Friend just said, that we will all start donating with our funny new credit cards, whereby they are just swiped by a reader and someone donates £2 or £5, or it will even be possible to get some kind of app for a phone that does the same thing. I am not sure in that situation
I gently suggest to the Minister that he might want to think about future-proofing the Bill. I am not suggesting that he should bring something into effect from the start, but he could just insert a clause that will allow HMRC to have the power to redefine “cash” to include some kind of electronic equivalent. That seems a reasonable thing to have in the Bill. It means that if life moves on and we all change the way that we behave, he would not need to come back in a few years’ time with primary legislation to make this change; he could just pass that order. I think that it would be similar to the powers that are already being given to the Treasury in clause 13; it would just change “cash” to some kind of electronic equivalent. HMRC could then set out exactly what that would be. I accept that, for things such as credit cards or even texts, whereby we have heard it may be possible to get a gift aid declaration from people, there may be no need for that power, but I suspect that there are already some things, and there will be more in the future, for which getting that declaration just will not be possible and the change that I propose would simply extend the scheme to cash-equivalent small donations.
Jeremy Lefroy: I just want to add to what my hon. Friend has said, with which I am entirely in sympathy. I would like to make a point that I raised during the evidence session and which I think the hon. Member for Kilmarnock and Loudoun mentioned in an intervention a few moments ago. It is about donations at funerals. Often large amounts of cash are raised, which are then split between two or three different charities. It is then the responsibility of the church, or wherever the funeral is held, to divide up the money that is received in cash between those particular charities.
Clearly, it is physically pretty impossible for the church to split the cash into two or three. What they will normally do is bank the entire amount and then give a cheque to each of those charities. I just wanted to ask the Minister whether, under those circumstances, the Bill will provide for that cheque to be treated as quasi-cash, or whether we can make a slight amendment that will allow these sums to be included as being eligible as small cash donations, which indeed they are and were originally, when they were given, but they have had to be—as it were—translated into cheque form for ease of administration.
Sajid Javid: I have been called many things, but I have never been called a dinosaur before. However, if opposing this amendment makes me a dinosaur, I am a dinosaur today, because the amendment would broaden out the gift aid small donations scheme to cover not only cash donations, but donations in non-cash form, namely donations by cheque or text, or donations made over the internet.
It might be worth reminding the Committee of the primary objective of the scheme. It is to provide a gift aid-style top-up payment in situations where it is difficult or unduly burdensome to collect a gift aid declaration from the donor. The most obvious examples of that are when a charity is making a street collection or when a
Susan Elan Jones: The Minister makes the point about the practicality of getting a gift aid declaration. He says that it would probably not be practical, yet he also says that any currency is acceptable, but that cheques are not. I do not wish to do anything that would damage what my hon. Friend the Member for Foyle has suggested, but if one was making a donation of a euro, a dollar or a yen, may I suggest that they are probably not eligible for gift aid? It does seem a strange anomaly that if someone makes a donation to a charity by cheque, the charity concerned would be exempt from the scheme.
John Hemming (Birmingham, Yardley) (LD): I have recently been abroad and have €5 hanging around in my wallet. I would quite like to give it away to charity. It would be nice to have a scheme whereby the Government got a bit of extra money for the tax that I have paid.
Sajid Javid: In relation to a donation that is just a couple of pounds, if someone has given a few pounds to a church collection, it would be unrealistic to ask for the details that would be required for a gift aid declaration. That means that charities are missing out on potential gift aid donations that are received in such a way, and it is exactly what the gift aid small donation scheme is designed to tackle. The scheme will fill this gap in the context of donations for which it is difficult or unduly burdensome to collect the necessary paperwork.
Sheila Gilmore: The Minister does not want to be described as a dinosaur, but he is perhaps assuming, as we all did until relatively recently, that if someone gave small amounts to organisations, they would do it in cash and if they gave bigger amounts, they would write a cheque. They may even do it online. Increasingly, is it not the case that people are making even very small donations in a way that they would never have thought about doing before—they may use things such as Text to Give or go online—so there is no longer the distinction that once existed?
Sajid Javid: Giving by cheque or through using digital technology means that the donor is already giving their details to the charity, and the extra amount of information needed to make a gift aid declaration is relatively small. Where a charity has an ongoing relationship with a donor, they should use gift aid if at all possible. Compared with a bucket collection on a busy street, it is considerably less burdensome to ask someone to provide their details if they are prepared to sign a cheque or go to a website to make a donation.
Mr Thomas: I want to echo the point made by my hon. Friend the Member for Edinburgh East. If one goes on eBay, wanting to sell or buy something, I believe that there is the provision to make a donation to charity. When someone is busy and leading a hectic life and they want to get their bid in or they want to put their property up for sale, why is that different from the couple of scenarios that the Minister has painted of the money going into the box at a prayer collection, or the person in the street who is busy doing their shopping? They are comparable, albeit different situations. One is eligible under this scheme and the other is not.
Sajid Javid: Perhaps the hon. Gentleman could clarify his question. I thought that he was referring to buying products on eBay. I am not sure what the connection is between that and charitable donations.
Mr Thomas: My understanding is that there is provision on a number of auction websites, including those that eBay run, for one to make a donation to charity at almost the same time as one is seeking to make a purchase through eBay. Why should the donation through that route not be eligible, when it is a similar scenario to that of the busy person throwing some coins into a box or some money into a collection tin at a prayer meeting? The level of busyness of the person concerned is broadly the same, yet one donation is eligible and the other is not.
Sajid Javid: The hon. Gentleman will agree that if someone is using something like eBay, by definition they must be providing their details, including their address and other bits of important personal information. The next step of finding out whether they are a UK taxpayer—that kind of donation could go through the gift aid system—is not so big, because we would already be more than halfway there. It is clearly not the same as a bucket collection where someone has thrown in £20. Hopefully that helps answer his question.
I want to clarify a point that I made regarding text messages in the evidence session last week. I explained how one mobile phone company was looking at new ways of giving by text. It is already possible to attach gift aid to donations made by text message under current law. There are different ways in which that can be done, but the simplest involves the donor sending a text saying how much they want to donate. I understand that the donor then receives a text confirming their donation, and that this message asks them if they want to gift aid the donation and explains the qualifying conditions, such as the need to be a UK taxpayer. The donor can then respond to the text giving the gift aid declaration. The mobile phone company I mentioned earlier was looking at ways to simplify that, such as requiring only one declaration a year, but that would require a change to current gift aid legislation.
I welcome the support of my hon. Friend the Member for Amber Valley. He made a point about the evidence session when we heard from several representatives who either were from charities or work with charities. John Low, from the Charities Aid Foundation, which most hon. Members would accept has considerable experience of working with all types of charities, said that
“cash is important for many charities. We are addicted to giving by cash in this country. It still remains a very significant proportion of the giving.”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 54, Q84.]
My hon. Friend discussed future-proofing and he is right to point out that while many small charities rely on cash donations currently, things may change in the future. I point him to the commitment that the Government have made to review the measure in three years to ensure that it is working as intended and helping the charities that it is intended to help. If I happen to be the Minister responsible at the time, I will seriously consider my hon. Friend’s proposal.
Cathy Jamieson: Before the Minister moves on to other issues, will he clarify for the record situations where someone has collected small charitable donations or is responsible for such donations? For example, a school may decide to solicit some donations or, as I found recently, there may be a charity event where people are making donations, and someone has to take responsibility for collecting the money and giving it to the intended charity. Rather than literally handing over bags of cash, would everything be in order if they chose to do it safely by handing over a cheque? That is exactly the kind of real world situation that people need to understand.
Sajid Javid: The key requirement—meaning the requirement in the Bill—is that the donations are raised by the charity in cash. When the donation is given, it must be in cash form, meeting the other requirements of £20 or less and the other eligibility criteria. The key requirement is that it must be a cash donation, and it must be banked in the UK by that charity.
Cathy Jamieson: Sorry if I seem to be pressing the case, but the important point concerns the people who are perhaps intermediaries and are handing over that money. What would be expected of them, or would the charity have to check with the intermediary that it was receiving the proceeds of donations made in cash? What would be the expectations at that point, for the intermediary and for the charity?
Sajid Javid: The charity in question would need to certify to HMRC and be comfortable that those receipts were cash donations made to that charity. Clearly, in some cases the community buildings rule is relied on, and there are other restrictions concerning the charitable activity taking place when the donations were accepted. Again, the key requirement is that the donations were in cash, and the charity must be able to verify that to HMRC to ensure that it satisfies the terms of the Bill.
Finally, I will sound a note of caution about complexity. Text messages and internet donations can be made from anywhere in the world, but I hope the Committee agrees that the UK Government should not be paying a top-up on donations made from outside the UK unless there is firm evidence that the donor is a UK taxpayer or resident. We heard at the evidence session that charities are keen for this to be as simple for them to administer as possible.
Mr Thomas: I say gently to the Minister that the dilemma of the foreign national making a donation exists at the moment with small cash donations. A large number of foreign nationals perambulate up and down
Sajid Javid: I take the hon. Gentleman’s point, but I think he will agree that if the rules were changed to the design in the amendment, the number of potential donations made by non-UK residents or taxpayers would only increase. Clearly, that is not the intention of the Bill, nor something he supports or advocates.
Introducing other forms of giving into the small donations scheme would necessarily make it more complicated because, in order to pay on UK donations only, charities would need to keep records of the origin of the donation. That is comparatively straightforward to handle when dealing with cash, through the requirement that it be banked in the UK, but it would clearly introduce significant complexity for other forms of giving.
I turn to a couple of other points that were made. The hon. Member for Harrow West asked if the £20 limit on cash donations was too low. I remind him that the scheme is aimed at small—I emphasise “small”—cash donations. For most people, if not for him, a donation above £20 is a lot of money, which is why we have kept it at £20.
My hon. Friend the Member for Stafford cited the example of collections at funerals for several charities. Again, it is important to emphasise that the requirement is that small donations need to be banked by the charity concerned in order to be valid under the scheme. That is important in respect of protecting against fraud, and best practice for charity cash handling. If he would like to discuss the issue further, I should be happy to do so.
It is harder for charities to collect gift aid declarations in the street or at a religious meeting than through other channels. That is why the focus of the scheme is on cash donations. Gift aid can be claimed on text and online giving, so it is not necessary to include those forms of giving set out under the amendment. I therefore ask the hon. Member for Harrow West to withdraw it.
Mr Thomas: We have had a useful discussion on the amendment and some wider issues raised under the schedule. I was genuinely sorry to have felt the need to describe the Minister as a dinosaur; it was said in sadness. I wanted to describe him as a moderniser but, given the harsh, restrictive measure that he is determined to defend, he has not allowed me to do so.
Nevertheless, the debate has been encouraging. I see greater signs of warmer hearts among Opposition Back Benchers than I first thought there would be. The hon. Member for Amber Valley finally surfaced to share his worry about the Bill as drafted. The hon. Member for Congleton is conscious that her semi-rebellion has not been stamped on by the hon. Member for Chelsea and Fulham, who also shared her worry about the schedule, and the hon. Member for Stafford secured a meeting with the Minister to discuss his concerns about the provision. I hope he will use the meeting to discuss not
Cathy Jamieson: I do not want to take up a lot of time on the clause, because other issues are coming up on which we want to have a significant discussion. However, it is worth mentioning a few of the matters that were raised on Second Reading. I am aware that the Minister is drafting an amendment to the subsequent clause that will go some way towards dealing with our worries.
The clause under discussion deals with the principle of connected charities. Subsequent clauses gave rise to concerns among the various charities during our previous discussions. This subject was discussed during the consultation process, which, until now, I have not had the opportunity to say anything further about. As I alluded to on Second Reading and at our evidence session, some charities had difficulty accessing the information on the Cabinet Office website, so there may have been other comments that people wanted to make to Ministers, had it been more widely publicised.
The Minister seems to have the best of intentions in trying to get information out to people by suggesting all sorts of events in constituencies. I look forward to doing something in my constituency, as I make a habit of regularly trying to bring groups and organisations together to ensure that they receive the full benefit of the various pots of funding that are available.
One issue that was raised, however, concerned connected charities. Trustees often serve on more than one trustee board. Would a trustee’s sitting on the board of two organisations that are considered similar be likely to cause problems at local level that might affect a charity’s eligibility to join the scheme? We will discuss that in more detail in our consideration of subsequent clauses, so I do not want to take up too much time on that now.
We are happy, therefore, for clause 4 to stand part of the Bill. We do not see any need at this point to table amendments, but, depending on the outcome of the various discussions on the proposed amendments to clause 5 and beyond, we may return to clause 4 on Report if we are unable to secure the kind of improvements we want for charities.
Sajid Javid: I welcome the hon. Lady’s comments. I am particularly pleased to hear that she, too, is now considering a charity funding day in her constituency. I am pleased that the actions I am taking in my constituency have proved so infectious with members of the Opposition. I extend to her my invitation to the hon. Member for Harrow West to shadow one of the assistants in my parliamentary office to learn how to put those days together.
Cathy Jamieson: With due respect and great thanks, I also offer the opportunity for anyone to come and shadow my constituency office manager, who worked for me when I was a Member of the Scottish Parliament and has great experience from 12 years of organising such events.
Sajid Javid: Clause 4 addresses the £5,000 limit on donations where two or more charities are connected to each other with none of them having run charitable activities in a community building in the tax year. The measure is being introduced to prevent exploitation of the scheme, as it will stop charities from fragmenting into a number of smaller charities to gain access to more than one allocation of £5,000.
The clause establishes that, where charities are connected, the maximum amount of small donations on which a top-up may be claimed will be £5,000 across all the charities. This clause applies only to charities that are eligible to make a top-up claim in a particular year. If charities are connected to other charities that are not eligible to make a top-up claim, those charities will be ignored for the purposes of the clause.
The clause sets out that, where a charity is connected to other eligible charities, the £5,000 limit is pooled. The £5,000 limit will be divided between the connected charities that make top-up claims for small donations made in a tax year so that the total amount on which the charities can claim is shared. That does not mean the amount has to be divided equally between the charities; they can agree, for example, that one of the charities will claim on the full amount of £5,000 and the others will claim nothing. The charity that makes a claim does not need to have received the full £5,000 in donations itself, because it can claim on donations received by the charities that are connected to it.
The connected charity rule limits the amount that larger organisations can claim and helps to ensure that funding is directed to smaller independent charities for which the top-up payments will make the most difference. The rule also ensures that there is no incentive for charities to fragment solely to qualify for allocations of the maximum limit. I therefore commend the clause to the Committee.
‘(4) In the application of section 993 for the purposes of subsection (3)—
(a) a charity that is a trust is to be treated as if it were a company (and accordingly a person), including in this subsection;
(b) a charity that is a trust has “control” of another person if the trustees (in their capacity as trustees of the trust) have, or any of them has, control of the person;
(c) a person (other than a charity regulator) has “control” of a charity that is a trust if—
(i) the person is a trustee of the charity and some or all of the powers of the trustees of the charity could be exercised by the person acting alone or by the person acting together with any other persons who are trustees of the charity and who are connected with the person,
(ii) the person, alone or together with other persons, has power to appoint or remove a trustee of the charity, or
(iii) the person, alone or together with other persons, has any power of approval or direction in relation to the carrying out by the trustees of any of their functions.
(4A) A charity that is a trust is also to be regarded as connected with another charity that is a trust at a time for the purposes of this section if, at that time, at least half of the trustees of one of the charities are—
(a) trustees of the other charity,
(b) persons who are connected with persons who are trustees of the other charity, or
(c) a combination of both.
(4B) In determining whether a person is connected with another person for the purposes of subsection (4)(c)(i) or (4A)(b), apply section 993 of the Income Tax Act 2007, with the omission of subsection (3) of that section (and without the modifications in subsection (4) above).’.
This amendment changes the rules for determining whether a charity is connected with another charity for the purposes of the Bill. This change is mainly intended to secure that two charitable trusts will not normally be connected merely because they share a single common trustee.
This amendment has the effect of broadening the number of organisations eligible for the GA S DS by removing the stated parts of section 993 of the Income Tax Act 2007 from the definition of “connected” for the purposes of the Bill.
The amendment gives the Treasury the power by order to amend the meaning of “connected charities” for the purposes of the Bill. Such an order would be made by statutory instrument subject to the draft affirmative procedure in this House (see Clause 16).
Sajid Javid: Amendments 2 and 3 modify the connected charity rules in clause 5 for charities that are charitable trusts. The purpose of the connected charity rules is to deter charities from fragmenting in order to increase the number of £5,000 allowances from which the charity can benefit under the scheme. The rule applies only where the charities—or community amateur sports clubs, known as CASCs—are undertaking substantially similar activities and have substantially similar purposes. A charity delivering support for the homeless, for example, would not be connected to a charity that supports the education of vulnerable children.
Most charities and all CASCs are subject to corporation tax. The Taxes Acts already provide a definition of when a company is connected with another person, whether that person is another company, a living individual or a trustee. The Taxes Acts also include well-trodden rules that determine when an individual is connected with another individual, for example a spouse, a civil partner or their children. Clause 5 keys into those provisions.
However, clause 5 also deals with the small minority of charities that are set up as trusts. There is no appropriate concept of a connected trust as such in the Taxes Acts. However, rules to connect charitable trusts with other charitable trusts and with other persons are needed for the purposes of the scheme, and clause 5(4) provides special rules for doing so.
Respondents at the public reading stage pointed out that the effect of subsection (4) would be to connect two charitable trusts doing similar things even if they shared one trustee, which would be a problem in cases where it is difficult to find anyone willing to stand as a trustee; one person may end up as a trustee of several charities. We agree that that was not the intention of the provision, and on Second Reading the Exchequer Secretary said that the Government would be willing to reconsider the rules.
The amendments to clause 5 substitute a new subsection (4) and insert new subsections (4A) and (4B) and a new subsection. The effect of the amendments is as follows. First, the rules that apply in the Taxes Acts to connect charitable companies will also apply to charitable trusts. However, the connected company rules cannot be applied to trusts in their entirety, because companies usually have share capital, members’ voting rights and so on, and the connected company rules use those concepts in certain places. By contrast, a trust deed sets out how the property in trust and income arising from the property are to be managed and who should benefit from the property and income. The trustees are required to act in accordance with the trust deeds.
Proposed new subsection (4) sets out in more detail than the original subsection (4) when a person may control a trust by reference to exercising the powers of the trustees or to direct trustees to act in accordance with their wishes. Importantly, it removes the original provision that connected two charities simply because they share a single trustee.
However, proposed new subsection (4) would have made it too easy for trustees of charitable trusts to set up new trusts to benefit from the scheme, encouraging fragmentation, so new subsection (4A) introduces a further test to connect two charitable trusts. It will apply where at least 50% of the trustees of one trust are also trustees of the second charitable trust.
The amendment to clause 5 proposed by the hon. Member for Kilmarnock and Loudoun would confine the rule to the individual trustees. People connected with trustees, such as spouses or civil partners, would not count. If two trusts, A and B, had similar activities, if two of the five trustees of trust A were also trustees of trust B and the husband of a third trustee of trust A was also a trustee of trust B, then the two trusts would be reconnected. I think that that helps to show that it is important to get the clause right.
Cathy Jamieson: I thank the Minister for trying to throw some light and clarity on a complicated situation. Does he accept that in many circumstances people are connected by reason of being each other’s spouses or other family members, and that the provision could, therefore, limit the opportunities for people to be trustees?
I do not think that the result is unreasonable. If we accept that individuals can be connected through their personal relationships, it follows that there will be times when trusts will be connected through the personal relationships of the trustees. It is important to set the rules in context: most charities are not charitable trusts, and to be affected, the two charities need to be doing substantially similar things.
Mr Thomas: The Minister knows that what he has described is extremely complex. Does that not, therefore, underline the need to provide further clarity through a properly organised series of national meetings for small charities that want to understand the need for the legislation, rather than relying on individual charities going through guidance or turning up to the Minister’s charity away-day?
Sajid Javid: The hon. Gentleman is right that the rules are complex; that reflects the feature they try to capture. However, he is also right that it is important that the Bill, when enacted, is well advertised and explained, and that when HMRC contacts charities there is an appropriate mechanism through which they can raise their questions, either via the advice line or directly with HMRC. The guidance, when it comes out, should try to cover the issue as clearly as possible, so that it is easily understood.
Cathy Jamieson: Given that the issue was raised at an early stage in the consultation and has been raised again on Second Reading and in evidence, what further consultation has taken place with the charitable sector for the amendment to be arrived at? Has any assessment been made of the number of trusts that would be captured?
Sajid Javid: There is an estimate of the number of trusts to which the provision might be relevant. As the hon. Lady points out, it is relevant only to charitable trusts, and the two trusts would need to be engaged in similar charitable purposes. There could be situations in which two charitable trusts for all other reasons might look connected, but if they were conducting different activities they would not necessarily be caught by the provision. HMRC consulted trusted stakeholders and went through the provision in detail with them, and the output from that was taken into account in the development of the clause and the Government amendment.
Charity representatives have been supportive of the amendments, but we recognise that the provisions are complicated. Until the rules start being used in practice, we cannot be certain that they will work as intended, so amendment 3 gives the Treasury the power to amend by order the connected charity rules. Any order would be subject to the affirmative procedure in the House.
Cathy Jamieson: Given that the Minister accepts that the rules are complex and it will not be possible to assess how they operate until they are actually in operation, and that he wants to build in a provision to allow
Sajid Javid: I readily admit that this part of the Bill is complex and that we do not know exactly how it will work until it comes into practice. I think we all agree, however, that that is not an argument for not proceeding with the Bill. It is sensible to empower the Treasury to amend the rules, so that when the Bill becomes law and we see how things work out in practice we will be able to make changes if necessary. If at that time the hon. Lady