Small Charitable Donations Bill
The Committee consisted of the following Members:
Alison Groves, Steven Mark, Committee Clerks
† attended the Committee
Written evidence to be reported to the House
‘(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).’.—(Sajid Javid.)
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 GASDS 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 Treasury may by order amend this Act so as to change the circumstances in which a charity is connected with another charity in a tax year for the purposes of the Act.’.
This amendment gives the Treasury 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).
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): It is a pleasure to be back in Committee this morning. We have a number of important clauses to get on to today and I do not wish to take up too much time on clause 5, but I do wish to seek clarification from the Minister on a number of issues. I am sure that due note will be taken of them, and that the Minister will be able then to sum up and give some responses—when he arrives in his place, or by some remote means if he is delayed for any length of time.
“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.”
The clause as drafted relates to section 993 of the Income Tax Act 2007, and I am sure that all members of the Committee are now hurriedly leafing through their papers to look at the specifics of that, if they do not already have the information in their heads as part of the homework they have done. I am sure that the hon. Member for Amber Valley will have the information on his iPad, ready to quote if necessary.
The effect of the clause as drafted would be that if two charities shared a single connected trustee they would be ineligible for the gift aid small donations scheme. The Government amendment changes that definition, so that charities will be ineligible if at least half—rather than just one—of the trustees of one charity are trustees of another [ Interruption. ] I welcome the Minister to the room. I was on a peroration to allow him to get to his place, so that when I came to my questions he would be in a position to answer them. He has not missed too much.
As I said, the amendment changes the definition so that instead of it being about just one trustee, a charity will be ineligible only if at least half of its trustees are trustees of another charity. Although the stakeholders—the voluntary sector and charitable organisations—who have been involved in the consultation and in commenting on the Bill say that they do not believe the situation to be perfect, they are happier following the change. However, the amendment confirms, under proposed new subsection 4A, that a charity will be also deemed
I hope that people are still following this—the provision is supposed to simplify the process, so I apologise. We have tabled amendment (a) because we need to probe with the Minister whether we should remove the restriction whereby two charities will be deemed to be connected if at least half of the trustees of one of them are persons who are connected with the persons who are trustees of the other, or at least half of the people on one charity’s board are trustees of that of another charity.
“Amendments 2 and 3 modify the connected charity rules in clause 5 for charities that are charitable trusts.”––[Official Report, Small Charitable Donations Public Bill Committee, 23 October 2012; c. 204.]
He explained the purpose of the connected charity provision, and I do not think I need to go over that again. He explained about charities and community amateur sports clubs being subject to corporation tax. He also mentioned that the Taxes Acts already provide a definition of when a company is connected with another person, whether that person is a company, a living individual, or a trustee. He also said that the Acts
“include well-trodden rules that determine when an individual is connected with another individual, for example a spouse, a civil partner or their children.”––[Official Report, Small Charitable Donations Public Bill Committee, 23 October 2012; c. 204.]
We welcome the fact that the Minister was trying to provide clarification, and we accept that he has been genuinely willing to try to amend a complex part of the Bill. However, we are worried that the Government amendments may have unintended consequences. It is fair to say that although the sector has welcomed the amendments and the attempt at clarification, that is perhaps not their highest priority in the Bill. We have heard about other areas, including the matching ratio, and we will come to bigger worries concerning community buildings and so on, and cash donations. Those are the sort of matters the sector is most concerned about.
As we are scrutinising the Bill line by line, and noting what the Minister said on Tuesday, it is important to pursue the matter in a bit more detail. I return to what he said at our previous sitting when we asked whether the Government’s new amendments on connected persons and connected charities will serve their purpose. He said he was sure I would agree that
“because of the feature that the clause tries to capture it is difficult to come up with the simplest possible language to ensure that it cannot be exploited.”––[Official Report, Small Charitable Donations Public Bill Committee, 23 October 2012; c. 206.]
Susan Elan Jones (Clwyd South) (Lab): I think most of us agree that churches and faith groups will welcome the Bill, but one of my fears is that this element might affect some of them. Many hon. Members will be aware of instances where churches and faith groups have a small registered charity that perhaps works in a developing country, and for which gift aid is claimed. It is highly likely that the trustees will be the same people as those of the church.
Cathy Jamieson: I thank my hon. Friend for her intervention, which illustrates a point that is causing concern in the real world. I am talking about the language in the Bill, and how it will be interpreted. She does us a service in bringing us back to what happens in the real world. With the best of intentions, people give up their time to serve as trustees in various organisations, and the last thing they want is to be left feeling that their contribution is not valued or welcomed, or that it is likely to have been constructed in that way because of improper means. As I was reading the transcripts of our previous sittings and the evidence sessions, I was worried about the amount of time we spent discussing fraud and possible fraudulent activities, instead of focusing on other ways of making the Bill better or getting the message across to charities that we accept that the vast majority of people are involved for the right reasons. There were concerns that if people were trustees of connected organisations, there could be difficulties.
Mr Gareth Thomas (Harrow West) (Lab/Co-op): My hon. Friend will know that when a Minister admits that a Bill is complex, it is the parliamentary equivalent of asking the Opposition for mercy. We, being generous souls, are willing to show the Minister mercy, but small charities will struggle with the provision. Does that not underline the Opposition’s request for the Minister to instruct or indeed encourage Her Majesty’s Revenue and Customs to organise events at which its officials, who are probably the only people apart from my hon. Friend who understand the provision, can explain face to face to the charities that are worried about the Bill what it means, in practice, for their aspiration to get, potentially, £1,250?
Cathy Jamieson: Once again my hon. Friend makes some good points. I am not sure that I agree about the Minister asking for mercy; I do not think that so far he has done that outright. However, it is a fair point that he has admitted that some of the clauses are complex and guidance will be needed.
I always worry when we get to the point of saying we will need lots of guidance to explain what is in the Bill, but without any suggestion of when it will be presented in draft, how many pages it will have, or how it will be put on to Government websites, for example.
I do not want to stray off the point, and I know that you, Mr Turner, will not allow me to do that, but as an example I looked this morning at the HMRC website for information about the forthcoming changes in relation to higher rate taxpayers and the child benefit clawback—only to be redirected, when I pressed the button that I thought would take me to the promised information, to a note given to us in our debate on the tax impact. That is an example of how important it is, if the Government say there will be guidance and information, to make it available, and in a way people can understand. In the circumstances it would be helpful for charities that are set up in trust form to be contacted directly and offered information, and for events to be held as my hon. Friend the Member for Harrow West suggested.
I shall return to the text of the amendment in a moment, but a question I want to ask the Minister, which I raised on Second Reading, is, how many charities were set up in trust form and are likely to be affected? What was the original estimate of how many were deemed
That will suggest the scale of what we are discussing. Are we once again trying to legislate for every possible scenario, and going about it in a way that is not particularly easy or understandable? Is the number of relevant charities very small, in which case guidance may be appropriate? If a huge number of charities are affected, and many pages of guidance, websites and events are needed, perhaps the wording in the Bill is not right.
We want to probe the question of what the definition of a relative would be in the circumstances set out in the Bill. I understand that for the purposes of parliamentary drafting, the draftsmen will of course go to previous legislation—in this case legislation on income tax and reforms of taxation where there are specific definitions of a relative. It is important to understand whether those definitions will be used in the present Bill.
What would the ordinary person in the street—one of the people who run charities, who will not necessarily go page by page through the income tax rules, or understand them—understand to be a relative? How far down the family tree would they go to decide that? Is it a son, a daughter, an aunt, an uncle, or a grandparent? Those things are not easily discernible from the Bill.
“But a charity is not to be regarded as connected with another charity at a time for the purposes of subsection (1) unless, at that time, the purposes and activities of the charities are the same or substantially similar.”
It is not entirely clear from the Bill how the purposes and activities are to be defined, or who would decide whether they were substantially similar. It has been difficult for the sector to get any guidance or information that would shed light on the matter. During the course of preparing for this Bill and trying to understand it in more detail, we talked to the Institute of Fundraising, which told us that it had been difficult to give a view on which charities might be deemed to be connected without seeing the constitutions of the charities and getting a judgment on whether or not they had control over other charities.
The Institute of Fundraising also identified some concerns about charities that operate in a federated structure in which there is some element of direction of charities within the group. Indeed, some charities may set things such as national quality standards or an expectation of how their local branches are supposed to work. The parent body, therefore, may not have overall control, but it certainly establishes a set of criteria that the federated branches must follow. Those are some of the issues that the sector has raised. It also identified potential knock-on consequences for charities with community buildings if they were deemed to be connected under clause 5 (4) (C).
I do not want to pre-empt our discussions on the community buildings section, but as a point of principle, the charities have also said that it is not for the Government to encourage charities to structure themselves in a particular way because charities need to do so in a way that enables them to carry out their charitable purposes. They do not want to be encouraged either to split off from a parent body or to join up in particular ways to take advantage of this Bill, and I am sure that that is not what the Minister or the Government intended, but it could be one of the consequences.
Let me say a few words about amendment 3. The Minister will not be surprised that I raise this matter again. In a previous sitting—this goes back to the point about complexity that was raised by my hon. Friend the Member for Harrow West—I asked him whether, in the light of his acceptance that the rules were complex, it would not be possible to assess how they operate until they are actually in operation. If he wants to build in a provision to allow changes to be made, would it not also be sensible to provide for a formal review so that appropriate changes can be made if necessary? I repeat my point again that it is all very well for the Government to say that they are willing to make the changes, but unless we have a system and a process in place to assess the impact of the Bill and how it is working in practice, how will we know for sure what changes need to be made in the future? The Bill is complex and we regularly hear that guidance is required, that rules need to be put in place and that things may need to be changed, perhaps by secondary legislation. So we should have some kind of process in place that protects both those who are making this legislation and highlighting potential difficulties, and, more important, the charities and the voluntary organisations, and enables them to contribute to the process.
I hope that the Minister has given some thought to that point since our last meeting and might now be prepared to give a signal, notwithstanding his earlier indication that he was not minded to accept any amendments, that given the number of complicated wrinkles that need to be ironed out in the Bill he will accept some amendments on review clauses at some point in the Bill.
When the Minister rises, perhaps he will give us assurances on the matter and say that of course he is a genuine person, that he wants to work with us and to do his best for the charities and that he does not want to be seen as the Minister who introduced so much red tape into the charities. The Minister will want to go down in parliamentary history as the man who delivered the additional small donations top-up for the charities. As we know, Ministers come and go—indeed, they came and went during Second Reading—so perhaps the Minister will accept the logic of including a provision in the Bill to oblige his successor, if he moves on to greater things in the next few years, to undertake a review at some point. We will, of course, debate that issue further and I do not want to labour the point now.
I hope that, having heard the points that we have made, the Minister responds to our amendment by clarifying who will be described as a relative for the purposes of the connected charities and by giving some signal to charities that he is prepared to work constructively with those that are structured as trusts, to ensure that
The Economic Secretary to the Treasury (Sajid Javid): It is a pleasure to serve under your chairmanship once again, Mr Turner. I apologise for arriving a few minutes late. I have no reasonable excuse, but I apologise and thank the hon. Lady for getting into the thrust of her comments the moment I arrived. I hope that I have not missed any key points that she raised.
We have heard the Opposition’s thoughts on this group of amendments. I think that I am right to say that, despite tabling amendment (a), the Opposition accept the broad thrust of and intention behind the Government’s amendments. The amendments make it clear that we do not intend the connected rule to link two charities simply because they share a single trustee. However, amendment (a) to Government amendment 2 goes too far in leaving the scheme open to abuse. The hon. Lady made some good, thoughtful points, so allow me to explain the Government amendment.
Let me remind Committee members, by answering the hon. Lady’s question about the 50% number, that the purpose of the amendment was to justify why a connection can be created in respect of 50% of trustees in one charity. The rules that we have used are broadly the same as those currently used for trusts. In my opening speech on the amendments, I explained some clear differences between the way charities and trusts are constituted. We have taken the concept that is already in tax law regarding trusts, meaning that if 50% or more of trustees in charity A are the same as 50% of trustees in charity B, or if they are connected—if they are not the same individuals—then it is reasonable to assume that, in the way that the scheme is delivered, charities A and B are steered by the same group of people.
To offer further explanation of what we mean by “connected”, a key difference between the Government amendment and Opposition amendment (a) is in relation to a connection because people are relatives. I will define “relative” for the hon. Lady. However, before I define that, let me say that, clearly, the same group of people would have at least a 50% share in respect of charities A and B in my hypothetical example, but if it is not exactly the same group of people, then they are connected through a relationship—a mother and daughter or husband and wife relationship—and it is reasonable to assume that that is such a close relationship that, even though the same people are not involved with the two charities in question, the fact that they are closely related constitutes a connection that suggests that they could work in concert.
Jeremy Lefroy (Stafford) (Con): Can the Minister set my mind at rest that, for instance, separate churches within one diocese or, as the hon. Lady mentioned, separate local organisations of a national federation would not be caught by the amendment because of some common governance perhaps?
Sajid Javid: What we are interested in and what the Government amendment is focused on is the control of the charities concerned. I hope that we have already made it clear that we are trying to capture the essence of where that is. The benefit of the scheme is that there is a
Allow me to return to the hon. Lady’s question about the relatives. The definition of “relative” used in the Bill is from section 993 of the Income Taxes Act 2007 and so involves ancestors or lineal descendants—a parent and child relationship—or a relationship with a partner, whether a civil partner or spouse. HMRC intends to use that definition, which is well established in practice and in tax law for other areas outside the Bill when HMRC is looking at close relationships. The effect of the Government amendment will be to clarify the situation for two different charities with a husband and wife involved—charity A has the husband and charity B the wife, let us say. They are clearly two different people, but it is fair to say that there is a connection. If we were to follow through with the Opposition’s amendment to our amendment, although well intended, the connection that HMRC would have been right to take account of will be created.
Jeremy Lefroy: I thank the Minister for his patience. Will the provision apply even if the objects of the two charities are completely different? For instance, if a husband and wife or two partners were operating local charities with completely different aims in the same area, will the provision still apply or will HMRC look at the intent of the charities and see that they were different?
Cathy Jamieson: The hon. Gentleman is making an important point about something I mentioned in my contribution: who makes that decision about what is broadly similar and what is entirely different, because some subjective decisions will be made within that. Can the Minister give us some examples for the record? From information he has been provided with by charities, or situations he is aware of, what might be deemed to be broadly similar?
Sajid Javid: HMRC will make the decision. It is important that the guidance, which follows the Bill, gives examples of that. It needs to be as clear as possible to charities or potential charities. If the hon. Lady will allow me, I am happy to give her a couple of examples, perhaps when we discuss the issue again in a related way, of what might be deemed to be similar. The authorities need to make a judgment when it comes to trust law, outside of charity law, in any case, so it is not something that HMRC does not have experience in.
Susan Elan Jones: I can see in part where the Minister is coming from, but my slight fear on that is that a small charity might say, “Right, the way we get round this is to have the smallest possible number of trustees.” Any of us who has been involved in charitable organisations will recognise that to have a medium number of trustees is good for a small charity, especially community ones. I fear that we might be meddling ever so slightly in the governance of small community charities in a way that does not help much, to be honest.
Sajid Javid: I want to ensure that I understand the hon. Lady’s question. Is her point that the provision is too complex for smaller charities, so though it might be easier for medium-sized charities to understand, it is more difficult for smaller ones?
Susan Elan Jones: Apologies if I did not express that well. My fear is that charities might think, “Right, the way to get around this is to have a very small number of trustees,” simply to avoid having trustees who are related to each other—if you see what I mean. For community charities, that is often not a great idea.
Sajid Javid: Yes. I thank the hon. Lady for clarifying her question. I do not see how the amendment will necessarily affect the number of charities. I do not think that many charities will think about how to get around the provision, as such, because most charities accept the gist of the Bill and the intention behind it
I ask the hon. Lady to keep it in mind that the provisions we are discussing now will not affect many charities that will benefit from the Bill. The vast number of them are single, small charities with incomes of less than £5,000, which will plan to benefit from the Bill, and many will not have shared trustees. They will be affected only if they share trustees with other charities involved in similar activities or if trustees have a relative, as defined, in another charity. I hope that that will be only a small portion of the charities able to benefit from the Bill. I cannot see any reason why the drafting of the amendment will reduce charitable activity, as opposed to boost it.
Susan Elan Jones: I am thinking of something like a church that has a night shelter or another faith organisation with a project in the developing world. The chances are that the trustees of that project, or certainly people related to them in the case of small and medium-sized churches, are likely to be the same people as in the faith organisation. That is my concern. I know that the hon. Member for Stafford raised that point about a wider group—whether a diocese or, I presume by extension, faith groups in an immediate geographic community.
Sajid Javid: Perhaps I can reassure the hon. Lady on that. She used a good example of a church group that, as well as its religious church activities, might have a similar group of people operating a night shelter or food
When a charity is formed that is clearly not intended to be connected to another charity but that might be unintentionally caught by the connected rules, if its founders know how the rules work and they have a choice of trustees—including, for example, the wife of someone in another charity—they may be able to structure the charity so as to ensure that it is not inadvertently caught by the measure. There would be nothing wrong with that, as long as they stay within the spirit of the rules.
Mark Durkan (Foyle) (SDLP): The Minister has just made the point that charities can structure themselves so that they do not inadvertently fall foul of the rules, and that they can work within the spirit of the rules, but people move into charity commitments out of a spirit of charity and good will in an attempt to support good work. The whole idea of charities having to structure themselves to be in the spirit of the rules is one of the aspects of the Bill that many people will find counter-cultural.
When it comes to family issues, the Minister is in danger of creating weird, soap opera scenarios involving places that people have to avoid and questions of who is related to whom. On the issue of charities that are related, or possibly related, to one another, consider the issue of suicide, which is a serious problem in my constituency. There are different charities, and people often commit to them on a family basis because of their own experiences. One charity might focus on suicide prevention, while another might focus on suicide prevention by way of helplines, particularly for young people or for those with depression and addiction. Other related charities might focus on supporting those who are bereaved by suicide.
The same people are often involved in those different charities. Often, trustees who have been involved with one charity help people to found other charities. Will they be caught by the connected charity rule? By the sound of things, they will. That would be terrible for families who have had that experience and who are trying to show solidarity with and commitment to others, and to make a real contribution. Health officials support such charities and are common trustees in some of them. Will they be caught as well? The rule will create a serious situation for people who are simply trying to cope with the worst that life could do to them.
Sajid Javid: The hon. Gentleman raises a very good and fair point. Such issues will arise when the Bill is enacted, but I would to like reassure him somewhat. He used the example of a suicide-related charity, and many good charities operate in that area to tackle the same ill in society. If I understood his example, however, one may try to prevent suicides and one may help families and friends cope with bereavement. HMRC will not necessarily see such charities as related, even though they are trying to deal with the same issue in society. They would be seen as similar activities if they were
Cathy Jamieson: My hon. Friend the Member for Foyle has raised an important point about something that we have not explored in any detail. In some instances, people will become trustees on charitable boards or organisations by virtue of their employment in a particular sector as a representative of, for example, local government, or indeed health, as my hon. Friend has suggested. Has the Minister looked into that to see whether there are implications for people serving on several different boards?
Cathy Jamieson: For clarity, I will go back to the point that I asked about before. I asked the Minister whether he could indicate the number of charities caught in the Bill’s original provisions and how this set of amendments was brought forward. Has any work been done on that? Essentially, what I wanted to find out was whether we were trying to legislate for something that is not actually happening in any meaningful way.
To return to the Minister’s point, the question is about the potential for people who, by dint of their employment, would find themselves as a trustee being put on to a particular board, and so there could be implications if they or their families were involved in a number of different local organisations. Has any assessment been done of that issue?
Sajid Javid: I thank the hon. Lady for that clarification. HMRC will develop its rules in this new system of giving help to charities. It is connected with gift aid, but it is unlike gift aid. It is not a relief; it is a top-up system. HMRC will need to make new assessments. The issue the hon. Lady has raised clearly needs to be taken into account. I do not have the numbers, but I am sure that an analysis has been done. I will check whether there are figures and examples that I can give her.
The hon. Lady asked whether we are sure that the measure is actually necessary, and whether a problem actually exists. That is a difficult question to answer. The legislation does not exist, so there are no incentives to have looked at the problem in the past in the case of the charity sector. We can talk about the trust sector, where there are certain tax reliefs for companies, but I do not think there are any historic data. We are in a new area and HMRC will have to make judgments about how it thinks the scheme will work.
That brings me to a related question. The hon. Lady asked about a review clause, which we might come to later. As I have said and am happy to repeat, the scheme is new and I am sure, once it kicks in, that the Government will learn how it is being used over the next few years. It is fair to say that with any new legislation—this is no
The Government intend to review the scheme in three years’ time. I have said that a number of times, and I am happy to put that on the record. I do not think there is a need for a formal review clause. As the hon. Lady knows, that is not the case with much legislation, and I do not think it necessary in this case. However, we will look at it again because we want to ensure, as she does, that the scheme works in the way intended and that it helps charities, particularly small community-focused charities.
Nigel Mills (Amber Valley) (Con): We have touched on many scenarios. May I give the Minister another? What about community amateur sports clubs? Are they in danger of being caught out by the proposal? What generally happens is that the same group of keen people run the football club in winter and the cricket club in summer, or perhaps the son runs the cricket club and the father runs the bowls club—if that is not being too stereotypical. Is the fact that they are different sports, even if they are in the same community, sufficient for them not to be considered connected, or would that potentially be a problem?
Sajid Javid: The proposal does apply to community amateur sports clubs, which will be subject to the same conditions as charities. It is fair to say that if someone is interested in football, they may also be interested in cricket, and the same group of people may be involved in running both clubs. However, the two activities are clearly different, and the clubs would not be caught by the measure. That is not the intention.
Mark Durkan: I want to go back to the example from my constituency of a prominent official at the health and social care trust who is a trustee of several specific charities of the kind I have mentioned. Is he in danger of having to withdraw from a charity or not be involved in new charity, or of having to check with the tax office whether he can get involved? Will that person, who makes a good vocational contribution beyond his workplace, be able to continue?
Sajid Javid: It is someone the hon. Gentleman knows well. I attend charitable events in my constituency, as all hon. Members do in theirs, and meet the people involved. The charities can be different, but one often meets the same active people. I therefore know exactly where the hon. Gentleman is coming from with his question. I reassure him that the Bill’s purpose is not to catch out charities and the most active individuals. A key purpose of the Bill is to prevent charities from fragmenting
I hope that the hon. Gentleman will appreciate that a vast number of charities will not be caught by the new rules at all. Where charities are engaged in different activities, it will not be an issue. If someone is involved in two charities that do virtually the same thing, they will know to think about whether the rules affect them. The hon. Gentleman asked about one particular individual, but one individual will not be enough to connect two charities unless they are the person who controls the boards. I also ask the hon. Gentleman to keep in mind that significant guidance, with examples, will be available, and HMRC will rely, as it does in so much of its work, on people declaring where they think there is a connection that may fall foul of the rules. Even where HMRC has deemed that they are connected under the rules, there is always a right of appeal, and that will not change. I hope that charities need not rely on it—it should clearly be an exception rather than the rule—but it is important that if someone feels that a connection has been made mistakenly, they can act. I hope that after the Bill kicks in and charities see the guidance and start using it, things will become clearer. I am confident that the example outlined by the hon. Gentleman will not necessarily be caught.
Suicide is an issue that is increasingly expressing itself and being recognised in different places, and several new charities have formed that focus on different aspects of it. It is quite common for people starting one charity with a specific focus to ask people involved in existing charities to be involved and help, not just because of their experience but to give people confidence and understanding that the new charity is not a rival to the other charity, but provides another focus and a different emphasis, and that the people involved in the other charities are comfortable with that. In a constituency like mine where there are stark community divisions, people make a point of inviting people who are already involved in an issue, to show that things are not divided along sectarian or communal lines.
There are good reasons why people deliberately invite people who are visibly involved in other charities. The names might lead people to think that the new charities are doing the same thing, but anyone who looks at their work and hears them talk knows that they are doing different things. I am not sure whether HMRC necessarily has the social skills to grasp that immediately.
Sajid Javid: The hon. Gentleman questions HMRC’s social skills. In my experience, the staff there have very good social skills. I have never seen them to be wanting in that department. However, he might be making a broader point that in any organisation—particularly one employing thousands of people with lots of rules, many of them necessarily complex—mistakes can be made. I will concede that. Clearly, HMRC is like any organisation; mistakes can always be found. He will
I ask the hon. Gentleman to bear in mind that the intention of the measures is to prevent situations in which, for example, charity A has a £5,000 limit under the scheme but is badly run, and someone says, “Why don’t we split into two charities that do exactly the same thing, with exactly the same mandate and intention in exactly the same area, the only objective being that we’ll get a £10,000 combined limit, as opposed to £5,000?” I hope that he will agree that, as we are guardians of the public purse and wish not to disbenefit other charities that are doing things the right way, the spirit of the amendment is correct.
Cathy Jamieson: Does the Minister accept that taking on the role of trustee or being on the board of a charity is a serious thing for a volunteer to do? People give up their time, and it brings responsibilities. Does he also accept that the last thing we want is for people with particular skills and expertise to offer charities not to be able to be board members? In the sort of situation that he describes, people who do not have a charity’s best interests at heart might be put on boards to replace people with expertise who were somehow connected, and we would end with charities that were not run well as an unintended consequence of the legislation. That would not be a good thing.
Sajid Javid: I have direct experience, in that until recently I was a trustee of a charity in London—the Westminster Children’s Society. I became a trustee many years ago for many reasons, one of which was that the charity was looking for someone with a financial background to help with the accounts and that type of challenge. That is a big decision for a charity, which has to give it a lot of thought, as it is not easy to find a trustee, particularly a well-qualified one.
The hon. Lady therefore makes a fair point. I agree with her that the intention is not to put off the good trustees that charities desperately need, especially as charities become more complicated as they grow in size and take on more challenges. However, the provision will not make it less likely that someone will join a charity. As long as the guidance is clear and the scheme works in the way intended, the provision will stop the fragmentation of charities.
To look back at my situation, that was a bit easier because I was the trustee of only one charity. If I had been invited to join another charity and had wanted to do so, the first thing to think about would have been whether it was entirely different in its work. We must remember the 50% rule. For example, simply having one shared person or trustee will not make a charity fall foul of the rule. The issue is about overall control.
Mr Thomas: Do not the examples given by my hon. Friends the Members for Kilmarnock and Loudoun and for Foyle underline the Minister’s acceptance of the complexity of at least this part of the Bill? I again gently
Sajid Javid: I agree with the hon. Gentleman about the importance of the guidance, not only once the Bill has gone through all its parliamentary stages, but before that. Even now, HMRC is planning its guidance. The Committee debates—some of the questions and excellent examples—have been very helpful, and will feed into the guidance that HMRC eventually publishes. It is important that any charity, small or big, should be able to contact HMRC directly if they need clarification on a particular issue.
As I said in the last sitting, on the back of the Bill, HMRC will go out to charities, hold meetings and do what one might call marketing of the scheme, to ensure not only that charities understand the rules, but—just as important—that they actually know that the scheme exists. We want all charities that meet the eligibility criteria to take advantage of the scheme.
I think that I have already said, though I am happy to remind the hon. Gentleman, that the very nature of trying to capture issues such as connectivity—whether it is here where we are dealing with charity, or in other laws where we are dealing with trusts—is complex. I admit that. That is one of the reasons why we have ensured that there is provision in the Bill to make changes in this area, through secondary legislation, if it turns out that they need to be made. I hope that that brings further reassurance.
Mr George Mudie (Leeds East) (Lab): That is a reasonable position, but not one that the Minister can guarantee to sustain. Is he prepared to put a target on the record that, if it is not reached, would be triggered to guarantee such a review? The Minister is advancing the argument that he wants the Bill to succeed, but the Opposition’s argument is that the Bill’s complexity—we are just getting to the foothills of the mountain—will block participation.
Ministers say that they will have a review, but at what stage would such a review come? Is he prepared to say that, if the take-up is not at a certain level by a certain time, a review would be triggered?
In terms of a target on take-up, the Government have published estimates of what they think it will be. Through HMRC, Ministers will be getting constant updates, and I can assure the hon. Gentleman that if, for whatever unforeseen reason, the take-up is significantly different from what we expected, I would question that and look at whether that is owing to the design of the scheme, or if it could be something else from charities. To give the hon. Gentleman an example, he knows that gift aid is rightly used by a number of charities, and that the annual benefit to them is around £1 billion a year. Charities take advantage also of another scheme, payroll giving. For that scheme, the figure for annual relief is around £150 million—I do not have an exact number at hand, but it is a lot smaller than gift aid. However, like gift aid, payroll giving is a scheme that that is available to all charities and is generous in tax relief.
Over the last few weeks, I have met representatives of charities about a number of issues, including the Bill, and when I questioned a group as to why payroll giving has a much lower take-up than gift aid, part of the reason they gave was that some charities—not all of them—prefer gift aid, and push it with potential donors over payroll giving because of the post-tax effect. Therefore, in terms of reasons for take-up, while most charities agreed that payroll giving is well established and reasonably easy to use, in some cases, the charities themselves look at the available schemes and tend to prefer one over another. That is not exclusive—it is not the view of all charities—but there are reasons such as that, and it is important to take into account what charities prioritise.
Cathy Jamieson: I am certainly very pleased to hear that the Minister has been meeting charities, and I hope that the Bill will take into account a whole range of other issues that they have raised. He mentioned that the Government have figures in mind for the take-up. Could he say, for the record, whether the take-up has been calculated around monetary value only, or does he have a number in mind of charities that will participate in the scheme over the three year period?
Sajid Javid: It is hard to predict the number; we are trying to come up with one. There are some numbers already that we can leverage off. There are 100,000-odd charities registered with HMRC and roughly 65,000 charities each year are claiming money by using the gift aid system. So that already gives a universe of charities that could immediately start benefiting from the scheme when it is running. However, it is hard to determine from those numbers exactly how the take-up will work, especially in the early years. We have forecast that once the scheme is up and running, which will take a few years, the figure generated will be around £100 million, but that number is being retested by the Office for Budget Responsibility, so I add a caveat to that, because of some of the changes that we are making today. But we have found that it is particularly hard to determine the number of charities.
There is certainly one thing that I would encourage HMRC to do in the interests of transparency. Once the scheme is running and we start getting some numbers and they are available, that is the kind of information that can be shared so we can see the number of charities that are benefiting as well as the impact of the scheme.
Mr Mudie: I am not sure whether the Minister actually said that in three years’ time he would review the scheme, but the Government are looking for 35,000 new gift aid participants to qualify for this small donations scheme. However, as those 35,000 people will not become eligible for three years, the first year and second year will demonstrate that the scheme is not working at the level that the Government want and envisage. So can the Minister persist in logically working out a target and a time frame that would allow for early intervention?
It seems that it will be six years before we would get a review, or the Minister sees the time scale for a review as six years. Well, the Minister is a high-flyer. I do not think that in two years’ time he will be in his current post; some other individual will be in his post and his words will mean little. The Minister will be somewhere in the Cabinet and this will be a forgotten pledge. Will he put something on the record, so that when he moves on we who are very interested in charities have something to grasp on?
Sajid Javid: First of all, this is a policy of this Government. I am very pleased and thankful that this Bill has the support of the Opposition overall; I genuinely welcome that and I think the whole charitable sector welcomes that. But because it is a policy of the Government, it is not the policy of one Minister and this Government will remain committed to the scheme. Even if I am not in my position in three years’ time, I am sure that the person who is in this position will keep the commitment of this Government. That is the intention.
Sajid Javid: The commitment is that the Government will review the working of this legislation in three years’ time and will consider whether it is working in the way that it is intended to work. During that process—it is not just a sort of on-and-off process that we will forget about for three years, of course not—we want to ensure that the take-up is working in the way that we expected it to, and as guidance is published and HMRC has contact with charities, issues may come up and guidance may need to be updated in the next few years. There should be no delaying.
For example, with the guidance that is published at the outset, if it turns out six months down the line—not three years down the line, but six months—that a lot of charities are asking the same question and they are not clear about the same particular point, I would want HMRC to update that guidance as soon as it can and not wait for any formal review. As HMRC generally does with any new measure, I also would expect it to publish annually the key statistics on take-up, the number of charities claiming and the amounts that are being given in top-ups. That kind of transparency will help as well.
Mr Thomas: To be clear, if I have understood him correctly, the Minister envisages the review starting three years after the scheme comes into force in April 2013, so it would start in April 2016. My hon. Friend the Member for Leeds East therefore need not worry, because an hon. Friend of ours will be in the Treasury at that point.
Sajid Javid: The hon. Member for Harrow West has said many things during our debate that have been very valid and thoughtful, but that is not one of them. His hon. Friend the Member for Leeds East has far more experience of politics, as a former member of the Government, as a Whip and now as an esteemed member of the Treasury Committee. I have to agree with the hon. Member for Leeds East that it will be this Government that will make the important decisions in 2016.
I have one other point of clarification about the charities that can benefit from this scheme once it is running next year. In terms of eligibility, the hon. Member for Harrow West mentioned the period of three years, but it is not the case that charities become eligible three years from the date from which the scheme runs; if they have met the three-year criterion as of that start date, they can start to benefit from the scheme immediately.
Mr Mudie: I disagree with the Minister. The Government’s ambition is not necessarily to get additional people to take up this scheme; the scheme is the bait for increasing the number of charities that take up gift aid. The Government are looking for 35,000 new charities to register for gift aid—that is their stated aim—but those charities will not have a record of claiming for three of the past seven years. One can see the Government taking major steps within a year, because it will be clear if the figures are very low after the first year.
Sajid Javid: As of today, even before the scheme is up and running, approximately 65,000 charities have made gift aid claims in a particular year, and over 100,000 users of gift aid are registered with HMRC. To meet the three-year criterion, charities must have made a claim in three of the past seven years. Therefore, even if they have missed one year, as long as they meet that criterion they can start benefiting from the scheme right away. It is right that we hope that some charities, particularly smaller ones, will start to register for gift aid for the first time, because they want to take advantage of this scheme and try to get an additional boost through gift aid. However, thousands of charities will be able to benefit from the scheme from day one.
Mr Thomas: I wish to clarify the point made by my hon. Friend the Member for Leeds East. As the Minister has quite rightly recognised, my hon. Friend is a diligent enthusiast for charities, so he will inevitably table parliamentary questions to check how many charities are benefiting from the scheme. The Minister expects 65,000 charities to be benefiting from the small donations scheme by the end of April 2014; can we expect an extra 10,000 at the end of April 2015 and another 10,000 at the end of April 2016? Is that a reasonable expectation for my hon. Friend and, indeed, the Committee to have?
Sajid Javid: The figure of 65,000 is the approximate number of charities that have been claiming gift aid in a particular year. The figure of 100,000 is the number of charities that are registered and have a record with HMRC,
The hon. Member for Harrow West mentioned parliamentary questions. He is right that the hon. Member for Leeds East is a very diligent Member of Parliament. There will undoubtedly be some parliamentary questions, but I hope that I can reduce their number by clarifying again my expectation that HMRC will publish at least annual numbers on the use of the scheme, take-up and other statistics that are often published with new schemes. So parliamentary questions may become redundant in that area.
Mr Thomas: With all due respect to the Minister, he is trying to wriggle out of the question that my hon. Friend the Member for Leeds East perfectly reasonably posed. It is reasonable for members of the Committee to ask how many small charities will benefit after the first 12 months. The Minister gave the example of 65,000. The Chancellor says he wants 100,000 charities to benefit. Let us be clear. Is the Minister saying that he is not sure now that 65,000 charities will be eligible and that the number that will be able to benefit by April 2014 is lower? His officials will have done some work to prepare the estimates of the costs. Let us have some clarity and transparency. How many does the Minister think will benefit by April 2014 under the scheme? My hon. Friend asked a perfectly reasonable question. The Committee deserves a clear answer and not the sort of wriggling that the Minister is doing.
The Chair: Before the Minister continues, I remind the Committee that we are meant to be dealing with amendment (a) to leave out subparagraphs (b) and (c), which say very little on the points to which Mr Thomas has referred. Can we move back to the substance of the debate, please?
Sajid Javid: Mr Turner, I will always take your guidance on these matters. Therefore, I ask the hon. Member for Harrow West not to press the amendment. It is important that we protect the scheme from abuse, but I think that Government amendments 2 and 3 would succeed in removing uncertainty for many charities that share single trustees. I therefore commend them to the Committee.
Cathy Jamieson: I was slightly surprised at the length of time and the detail that we got into on a number of issues on this clause. As my hon. Friend the Member for Leeds East said, we are only in the foothills of the mountain in terms of the complexities of the clauses that are yet to come. If this is us only in the foothills, we had better be prepared for ropes, crampons and oxygen to get to the top of the mountain this afternoon. We have had to spend this amount of time trying to get clarity on connected persons and connected charities, yet there are some serious complexities to come in relation to community buildings. I say that to illustrate again why from time to time Members feel the need to
During the discussion on the amendments, I have had some reassurance about some matters, although I might not be 100% in agreement. It is difficult, as a point of principle, when the Minister keeps emphasising that the top-ups are indeed top-ups and are not a tax relief, that we constantly go back to section 993 of the Income Tax Act 2007 to define who is a connected person. Those particular rules and regulations in the 2007 Act were not written with charities or trusts in mind. I accept that the Minister, in trying to make those definitions, has to look at what is already available and do the best he can in that context, and that is why we tabled the probing amendment on the proposals. I want absolute clarity in easily understandable language for people out in the real world who may not have section 993 of the 2007 Act close to hand to check whether they count as a relative.
Whether we like the Minister’s definition or not, my hon. Friend the Member for Foyle has suggested that it may cause further problems, particularly in local communities. I can think of examples from my own experience, such as when I was the trustee of one charitable organisation in a small rural ex-mining community. Other members of my family were closely involved with other charities that, because they serve the same population, may be considered to be connected. I am sure that we can all come up with similar circumstances.
The real question is about the number of times that the Minister has said, “Guidance will come.” At one point, which I noted, he said that guidance will eventually be published. The Bill was supposed to be dealt with under the new pilot scheme to improve consultation and engagement, and, during those discussions, all those areas that the charities and different organisations were saying were potentially a problem could have begun to be identified, and then that guidance could have begun to be drafted in some detail. People could see where things were going at that time, and it would have been good to have some of those examples in draft.
Sir Tony Baldry (Banbury) (Con): The debate has taken on a slightly surreal character. The hon. Lady was, I am sure, present when various charities gave evidence. She would have heard the representative of the Church of England, which, after all, represents a huge number of different charities, saying that it had no problems with the Bill and was totally confident that it could issue guidance on it very quickly. I am not sure who these groups of charities are that are having problems understanding the Bill.
Cathy Jamieson: I know that the hon. Gentleman has connections and great experience in relation to the churches and I would not in any way wish to suggest that I have greater knowledge than him, because I do not. I do, however, have a considerable amount of knowledge and understanding of and connection with small local charities and some of the other small organisations that have made representations to us. In a way, the hon. Gentleman got straight to the nub of the matter. The Bill and the amendments to it work pretty well for the churches. We will come to that when we discuss community buildings. The real worry is that it may unintentionally make it
Sheila Gilmore (Edinburgh East) (Lab): We had evidence from charities, especially smaller organisations, that many of their members already had difficulty understanding and working with gift aid. We cannot have a Bill designed around the needs of one particular group. Because it works for organisations such as the churches does not mean that it will work for other groups.
Cathy Jamieson: My hon. Friend makes a valuable point and I know that she, too, is closely involved with a number of organisations in her local community and she brings those examples to the discussion.
My point is on the guidance. I understand that the Minister was not involved in the Bill from the outset, that there have been changes and there has been a process around that, but the Minister has genuinely accepted at almost every stage that there are complexities in the Bill. Therefore, I was hoping that he would give a little more information about when we could expect the guidance to be published. Will it be published in advance of the implementation date? Will the charities be able to see it in draft? Will they be involved in a working group? Will they be invited to participate in that process and arrive at some potential solutions to the problems that they themselves have identified?
Mark Durkan: I welcome my hon. Friend’s very positive suggestion to the Minister. To date in Committee, the Minister has tried to fight off all the amendments on some of the very practical questions that came even from his hon. Friends by reaching into the ministerial Batbelt and producing the same tool time and again: “There will be a review in three years’ time”, using the defence that this is complex. It might be complex for us as legislators. It is a luxury for us to say that. It will be downright perplexing for people who are trying to use the measure. The Bill offers good, in particular to people who want to do good, but it is our job as legislators not to visit nonsense on people who are motivated just by common decency, and thereby detract from the very good purposes of the Bill. Therefore, will the Minister go beyond promising a review in three years’ time and saying that it will be all right on the night, and look more practically at my hon. Friend’s suggestion?
Mark Durkan: I just want to assure you, Mr Turner, that I was very much speaking directly to that, because one of the serious predictive predicaments that the Bill is generating relates to this very clause and this very amendment, which is designed to address it.
Cathy Jamieson: Thank you again, Mr Turner. I am indeed conscious of the time, but I feel that the level of debate and the amount of discussion that we have had suggest that it would be helpful if the Minister could deal with these matters. I am sure that my hon. Friends will want to return to these points at a later date. My hon. Friend the Member for Foyle makes a very important point, which is that, if the Bill is to be improved, we have an opportunity to do that, but the Minister has consistently referred to guidance and to that guidance having to be produced. I have not yet counted up the number of times that he has said that there has to be guidance, but no doubt I will have the opportunity to do that at some stage. It suggests to me that a considerable amount of work still has to be done with these organisations, which are genuinely concerned. I repeat that we want the Bill to succeed. We want charities and community amateur sports clubs to be able to pick up the opportunities that it provides. However, we also want to get it right, so that they do not get bogged down in bureaucracy.
In the interests of making progress, I will not press my amendment at this point, but I will want the opportunity on Report to consider again whether we need to do anything else on the clause. I hope that the Minister will take the suggestions in the spirit in which they have been made this morning, and can give us some comfort during discussions at a later date.
‘( ) The Treasury may by order amend this Act so as to change the circumstances in which a charity is connected with another charity in a tax year for the purposes of the Act.’.—(Sajid Javid.)
This amendment gives the Treasury 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).