Small Charitable Donations Bill

Memorandum submitted by the Institute of Fundraising (SCD 06)

The Institute has already responded to the HMRC consultation on the Gift Aid Small Donations Scheme in May 2012, the Public Reading Stage in August 2012 and consulted widely with supporters, so it has not been possible to submit original evidence and there is some overlap with our previous submissions and briefings on the core issues.

1. About the Institute

 

1.1 The Institute of Fundraising (registered charity in England and Wales (no. 1079573) and Scotland (no. SC038971)) represents fundraisers and fundraising throughout the United Kingdom. Its mission is to support fundraisers, through leadership, representation, standards setting and education, to deliver excellent fundraising. It is a membership organisation committed to the highest standards in fundraising management and practice. Members are supported through training, networking, the dissemination of best practice and representation on issues that affect the fundraising environment. The Institute of Fundraising is the largest individual representative body in the voluntary sector with over 5,300 individual members and more than 340 organisational members.

1.2 The Institute of Fundraising supports charities to maximise their Gift Aid income through training and advice and provision of resources, including the Tax-Effective Giving website http://www.tax-effective-giving.org.uk/

2. Executive Summary

 

Summary of Recommendations

§ Remove the 3-year Gift Aid claims requirement (Clause 2(1)) and consider alternative anti-fraud measures

§ Remove the requirement for matching standard Gift Aid donations (Clause 1(4))

§ Remove the connected organisations and community building rules (Clauses 4-9) and implement a simpler mechanism for identifying independent organisations

§ Allow non-cash donations to be considered as small donations (Schedule 1)

2.1 The Institute of Fundraising welcomed the Chancellor’s 2011 Budget announcement of the scheme and supports initiatives such as the Gift Aid Small Donations Scheme that aim to increase giving and income to the sector, especially for small charities. However, the design of the scheme, as outlined in the Bill, does not appear to be fit for purpose for its main aims. We understand the need to ensure that the scheme is not open to fraud, but the eligibility and conditions appear to be disproportionate to the risks and size of the grants.

2.2 The scheme is seem overly complex and controls seem disproportionate to the amount of money that might be claimed by charities. In particular we are concerned that the requirement to have successfully claimed Gift Aid for three years and have "matching" Gift Aid donations will exclude those organisations that would have benefited most from the scheme. We believe this seriously undermines the potential success of the scheme. Unless the criteria are changed, the target 100,000 organisations benefiting from the scheme is unlikely to be reached. The connected organisations and community buildings requirements make the scheme complex, and may disadvantage certain types of charities.

2.3 There are likely to be benefits to a range of charities from the scheme, however, the current design suggests that those who would benefit most are least eligible – i.e. those who do not currently benefit from Gift Aid income. Large charities who already claim Gift Aid will benefit from the scheme, which is positive, but unless the qualifying conditions are relaxed, the scheme is likely to fail to have a significant impact on the sector as a whole.

3. Context

 

3.1 In 2011/12, 65,232 organisations claimed Gift Aid, with the majority (47,102 organisations/ 73%) claiming repayments under £5,000. [1]

3.2 However, the 65,232 that claimed are still only a small proportion of eligible organisations – the exact numbers of which are unknown. In March 2012 there were 162,098 charities registered with the Charity Commission [2] – but not all of these will have Gift Aid eligible income, but also there are also significant numbers of organisations eligible for Gift Aid not included in these figures of registered charities, such as

§ exempt organisations (universities, museums, foundation schools etc)

§ excepted organisations (mainly churches and guide and scout groups)

§ Scottish and Northern Irish charities

§ Community Amateur Sports Clubs

This means that the potential number of organisations which could be claiming Gift Aid and have some donations from the public is likely to be in excess of 200,000. In his review of the Charities Act, Lord Hodgson put the figure for the number of charities at over 350,000 [3] .

3.3 So why are so many organisations missing out on this "free" money? For small organisations, particularly volunteer-run organisations, the perceived complexity of Gift Aid is intimidating and commonly puts people off until they know they are going to be claiming a lot. Despite strenuous efforts to promote the use of Gift Aid, many small charities refuse to register because of the complexity of the existing regulation (over 60 pages of detailed guidance in Chapters 3 [4] and 6 [5] alone) and because they have a lack, so far, of Gift Aid eligible income as their income from individuals might only be from small cash donations from collections.

3.4 If the Gift Aid Small Donations Scheme is to be effective at oiling the wheels of the Big Society at a local level, it needs to be as simple as possible, designed for small organisations run mainly by volunteers.

3.5 This context is important when considering the design of the scheme and the potential impact on small organisations that do not benefit or have limited benefit from current Gift Aid.

4. Matching

 

Clause 1: Top-up payments in respect of small donations made to eligible charities

4.1 We appreciate the desire of the drafters of the legislation to minimise the risk of abuse of the system, but feel that this stipulation will disproportionately penalise precisely those small organisations that the new Small Donations Scheme should be of most benefit to. This is an arbitrary way of measuring compliance and makes little sense in addition to the three year rule.

4.2 This clause may exclude a large number of small charities who do not have eligible standard Gift Aid donations from participating in the scheme – for example, charities who receive the majority of their income from trust and foundation grants and from public collections. They will be unable to claim the top-up on their relevant public collections as they have no or limited eligible standard Gift Aid donations in order to match their small donations collections income to.

4.3 As an illustration, of the 65,232 organisations that claimed Gift Aid in 2011/12, 25,682 (39%) received repayments of under £1,000, with average repayments from this group under £430 each. The majority of these organisations will not be able to claim the full amount under the small donations scheme, even if they have significant income from collections.

4.4 Linked to the points in 2(1) the matching requirements will also adversely affect the small charities that have yet to take advantage of the Gift Aid system due to the administrative requirements and perceptions that Gift Aid is complex to understand and administer still remain along with a ‘fear’ of getting it wrong. The need to monitor more closely the level of Gift Aid and link it with the amount claimed within a particular tax year for small donations is likely to exacerbate these perceptions.

4.5 We believe this matching requirement should be removed as it limits the potential of the scheme. Requiring a level of declarations is not in the spirit of the policy intentions which were to allow a Gift Aid style payment in circumstances where it is difficult to obtain a Gift Aid declaration. The Chancellor announced that the scheme would be light on bureaucracy "without the need for donors to fill in any forms at all."

Recommendation: Remove clause 1(4) and amend clause 1(3) so that it is clear that the maximum donation limit is the amount collected in small donations in the year up to the "specified amount", currently £5,000 (referenced in 1(6)).

5. 3-year rule

 

Clause 2: Meaning of "eligible charity"

5.1 Clause 2 limits the scheme to organisations that have successfully claimed Gift Aid for at least three years. This will exclude many small charities from participating in the scheme as they may not have eligible standard Gift Aid declarations in order to have made claims in the last three years, or were put off registering due to the perceived complexity of the scheme. In addition, it excludes new charities from participating in the scheme for at least three years after start-up. 

5.2 This condition is a significant barrier to participation for the thousands of charities who have not previously registered for Gift Aid. This will exclude those organisations that had the potential to benefit most from the scheme where an additional £1,250 would make a significant difference to their income.

5.3 In addition there are charities who have been fundraising tax-effectively, but using other providers who will be ineligible for the scheme based on this three-year requirement – for example where an administrative charity (like Charities Aid Foundation or Stewardship) takes over the entire collection and administration of Gift Aid for hundreds of small local independent charities, with the donors' gifts being made to the agency and then regularly re-distributed to the charities at the discretion of the agency or donor. Small charities that currently use these mechanisms such as Charities Aid Foundation schemes are unable to demonstrate successful Gift Aid claims for three years as required by the Bill as donations are made and Gift Aid claimed by the third party rather than by the charity itself – despite the fact that they have been fundraising and have had eligible donations.

5.4 We recommend that this three-year requirement should be removed and alternative anti-fraud measures considered for charities that are not already registered with HMRC for Gift Aid. Most of the current 60,000+ Gift Aid claimants will pass the "three satisfactory claims in recent years" test without problems. But to impose this condition on charities just starting out on Gift Aid limits the benefits of the scheme. Most of these charities will already have been registered with their official regulator (Charity Commission, OSCR etc) for at least three years, and will have had to submit accounts and will have to pass the fit and proper persons test with HMRC. To then be forced to wait three years before making claims reduces the incentive for registering. In addition, some charities whose main fundraising is from non-eligible sources such as donations from trusts, events and shops will not be eligible to claim the Gift Aid for the required three years even if they have significant income from small donations through collections which would be eligible for the Gift Aid Small Donations Scheme. 

5.5 There are other ways to demonstrate legitimacy and financial probity. For example, the eligibility test could simply be:

§ registration with an official regulator for at least one year (or be an exempt or excepted charity)

§ having made officially compliant returns

§ passed the HMRC fit & proper persons test [1] (which all charity Gift Aid claimants are required to go through anyway)

§ filed accounts that demonstrate voluntary donations or able to provide an independent examiners report of the income.

New charities could then claim the "Top-up" from the point of their first return/accounts to the regulator – usually 12-18 months after registration, but including donations the previous year. Excepted charities could be required to send accounts to their association, such as the Church of England or Scouts Association.

5.6 If a three year requirement for full participation in the scheme is to be included, then we would endorse the suggestions of a form of "probationary period" where organisations who were not able to evidence a successful three year track record in Gift Aid or who were new organisations could claim at a lower level to be less of an incentive for fraudsters. For example, this level could be £2,500 instead of £5,000. This would ensure that charities that do not have other sources of eligible income for standard Gift Aid cover their administration costs for claiming and are incentivised to fundraise further.

Recommendation: Amend Clause 2 so that an "eligible charity" is any organisation which has passed the fit and proper person test and is registered for Gift Aid. [and if new, submitted first year accounts]

Alternative: Amend Clause 2 so that an "eligible charity" is any organisation registered for Gift Aid and amend 1(4) so that the maximum amount is half the "specified amount" if the charity has less than 3 years successful claim history of Gift Aid or Gift Aid Small Donations.

6. Eligible Donations/Cash Only

 

Clause 3 and Schedule: Meaning of "small donation"

6.1 The conditions for donations should not be different to the existing Gift Aid rules – in particular non-cash donations should not be excluded.

6.2 Specifying that donations must be in cash is not consistent with the current Gift Aid scheme which allows for all donation mechanisms, and it is not consistent with the Government policy to extend giving mechanisms as outlined in the Giving White Paper [1] . Excluding cash donations is out-dated in the current fundraising environment where there are a range of fundraising mechanisms for micro-donations where it can be difficult to gain a Gift Aid Declaration – the Impact Assessment completed by HMRC and published on 14th June 2012 showed a lack of understanding of fundraising and provided no evidence for the assumptions made – for example, in relation to cheques that "the charity will know who the donor is... and it is straightforward for the charity to collect a Gift Aid declaration" and in relation to other forms of giving, "Digital giving is not anonymous so the reasoning for excluding cheques applies equally here – the charity will already have a degree of information about the donor and very little extra work would be required in order to obtain a Gift Aid declaration". [2] This is not accurate.

6.3 There are circumstances that where cheques are anonymous or donors may not be known to the charity. For example, cheques to charities are often received anonymously in lieu of flowers at a funeral or in lieu of presents at birthdays and anniversaries. These are passed to charities without the details of the original donors so it is not possible to gain a declaration. Neither charities nor the Government would wish to encourage the sending of cash donations through the post, yet it would seem that the Bill is encouraging just this – the donation being worth more by being eligible for the scheme if provided in cash.

6.4 Some mechanisms for text donations are effectively anonymous and with data unavailable to the charity other than a mobile number so it is not possible to gain Gift Aid Declarations – and in some circumstances for Data Protection reasons it is not possible to phone the person to get their name and address. Furthermore, other forms of cashless technologies such as electronic payments, pre-pay cards or other contactless technology could potentially be affected. New agencies are making these methods accessible to small charities. Charities have already been in discussions with Transport for London about the possibility of using Oyster Cards as a donation mechanism for station collections in the future, with collecting buckets being replaced by an Oyster Card reader – for example, "swipe here to make a £2 donation". This will be safer for volunteer collectors than carrying cash and more effective in an era where fewer people carry cash, but will be anonymous. This draft legislation does not reflect these developments and the fast-moving nature of fundraising.

6.5 Limiting the scheme to cash may exclude charities that are actively fundraising using a wider variety of methods, which does not seem to be in the spirit of the policy. The Institute of Fundraising believes that non-cash donations should not be excluded from the scheme.

Recommendation: Amend Schedule Pl. 1 to remove references to "cash", "coins" and "notes" to be consistent with the current Gift Aid rules. Relevant exclusions could be specified such as donations in goods or "charity vouchers", as the current Gift Aid rules.

7. Eligible Organisations: Connected charities and community buildings

 

7.1 The concept of community buildings creates additional complexity and will cause great confusion for small local charities and may dissuade them from participating in the scheme as some are already put off by the complexity of standard Gift Aid.

7.2 The "community buildings" concepts appear to have been designed to meet the needs of specific charities (mainly those known as excepted charities, such as churches and Scout groups, and those with unusual structures) and these exceptions could be managed in simpler ways. In trying to create "fairness" in some areas it has not just created complexity but it has also created unfairness between different charitable causes. It also may be that it has been designed to work around what may be a short-term problem as it is looking likely that the Charities Act Review will reduce the maximum threshold for excepted charities, with a higher proportion required to register with the Charity Commission in their own right.

7.3 Rather than creating new legislation and complex regulations around community buildings, it may be easier for HMRC to publish a list of national/regional bodies (Roman Catholic Dioceses, Salvation Army, National Trust, Scouts etc) with centralised structures that would be allowed to claim for each established local "branch". It would be administratively simpler for HMRC to deal with a few large, well-resourced central bodies than with tens of thousands of small charities trying to understand the new regulations. Each central body that wanted the right to claim grants for local branches would have to produce a list of branches and evidence of local cash collections for HMRC approval.

7.4 In addition to the perceived complexity that the connected charities and community buildings concepts may cause for smaller organisations, the clauses are ambiguous and it is possible that branches or offices of some large charities could be classed as community buildings and therefore eligible for additional top-ups with large charities claiming much larger amounts, which may not be in the intended spirit of the policy.

7.5 This level of the top-up payments are relatively small and are unlikely to incentivise large scale fragmentation – especially as each administrative unit will have had to have successfully claimed Gift Aid for three years under the proposal. It will need to have sufficient voluntary income in each unit to be worthwhile managing the units separately and making the separate Gift Aid claims for three years before claiming the top-up – and have sufficient small donations collection income so that they have something to claim in the top-up in each unit. This will be a very unlikely scenario and not worth significant regulations to tackle rare instances to the detriment of the majority of organisations who could benefit from the scheme.

7.6 However, if an "independent" criterion is being applied, it might be more appropriate if it was consistent with definitions already used in the sector. For example, the Big Lottery Fund Awards for All scheme for small charities defines the connection as dependent and independent branches and looks to fund those which meet the following criteria [1] :

§ have their own governing document (or have adopted the parent organisation’s governing document); and

§ produce their own annual accounts (which may be included in the parent organisation’s annual report); and

§ have their own bank or building society account and are responsible for this account and how the funds in it are spent.

Recommendation: It is recommended that all elements of the connected charities and community buildings sections are removed and that a new clause is added to define independent organisations, such as that used by the Big Lottery Fund above.

8. Amendments

 

Clause 13: Power to alter specified amount etc

8.1 Clause 13 allows the Treasury to amend certain provisions in the Bill. In general, this flexibility is welcome as it enables certain technical rules to be reviewed after implementation to address any teething problems. It also allows for increase in the £5,000 specified amount in time as it is devalued by inflation. We do not believe that the amount should be index linked as this will add complexity for charities, but the amount should be increased every three years.

8.2 However, as public spending rather than tax relief (unlike Gift Aid), the Small Donations Scheme will be subject to the spending decisions of future governments and could be amended without notice. The concern would be if charities (particularly small ones) came to rely on money claimed through the Small Donations Scheme, unaware that its future status is not guaranteed.

October 2012

Recommendation: Regulations should include a minimum notice period of a year if the value of individual donations or the specified amount is to be reduced or there are additional increases to the eligibility criteria.


[1] http://www.hmrc.gov.uk/stats/charities/table10-4.pdf

[2] http://www.charitycommission.gov.uk/About_us/About_charities/factfigures.aspx

[3] http://www.cabinetoffice.gov.uk/sites/default/files/resources/Review-of-the-Charities-Act-2006.pdf see 3.21

[4] http://www.hmrc.gov.uk/charities/guidance-notes/chapter3/sectionb.htm

[5] http://www.hmrc.gov.uk/charities/guidance-notes/chapter6/parta.htm

[1] http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp-persons-test.htm

[1] http://www.cabinetoffice.gov.uk/resource-library/giving-white-paper

[2] http://www.parliament.uk/documents/impact-assessments/IA12-015.pdf , page 4-5

[1] Big Lottery Fund, Awards for All England: Guide for Applicants , May 2011: http://www.awardsforall.org.uk/england/apply.html

Prepared 16th October 2012