Small Charitable Donations Bill

Memorandum submitted by HM Treasury and HM Revenue and Customs (SCD 07)

Introduction

This report provides a summary of the comments submitted on the Public Reading Stage website for the Small Charitable Donations Bill, along with the Government’s response to those comments made. It follows on from the comprehensive report of all comments made by respondents, provided by the Office of the Leader of the House of Commons.

The Coalition’s Programme for Government included a commitment to introduce a ‘Public Reading stage’ to provide the public with the opportunity to comment online on proposed legislation. On 12 July the Leader of the House of Commons announced in a Written Ministerial Statement that the Small Charitable Donations Bill would be the second pilot for the Public Reading stage (PRS) process, following the introduction of the Bill on 21 June. The website closed for comments on 23 August.

21 organisations and individuals made a total of 85 comments on the Bill. A large number of the comments came from well-known charitable sector representatives, including the Institute of Fundraising, the National Council of Voluntary Organisations, the Small Charities Coalition and the Charity Finance Group. However, a number of managers or trustees of individual charities also commented.

The comments were made across a range of clauses, but focussed on the key areas of the eligibility criteria for the scheme, the requirement to continue claiming Gift Aid in order to claim under the Small Donations Scheme and the rules around the additional allowances for charities that undertake charitable activities in community buildings.

There were a few comments on the nature of the scheme, rather than on specific clauses. A number of small charities commented generally on the benefit the scheme would bring to them. However a number of organisations, principally charity representative bodies, commented that while the original intention of the scheme was welcome, the Bill brought in too much complexity and so would not likely benefit small charities to the extent that had been originally envisioned.

The clauses and explanatory notes have been reproduced below for each clause that was commented on, but have not been included where there were no comments.

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

(1) A charity is entitled to a payment from HMRC (a "top-up payment") if-

(a) the charity is an eligible charity for a tax year,

(b) the charity has made a successful gift aid exemption claim in respect of gifts made to it in the tax year,

(c) small donations are made to the charity in the tax year, and

(d) the charity makes a claim in respect of small donations made to it in the tax year.

(2) The amount of the top-up payment is-

where-

SD is the amount of the small donations to which the claim relates, and

R is the percentage rate of the basic rate of income tax for the tax year in question.

(3) A charity is not entitled to top-up payments in respect of small donations made to it in a tax year in excess of the maximum donations limit for the charity for the tax year.

(4) The "maximum donations limit" for a charity for a tax year is-

(a) an amount equal to double the gift aid donations amount for the charity

for the tax year, or

(b) if less, the specified amount for the charity for the tax year.

(5) The "gift aid donations amount" for a charity for a tax year is the amount of the

gifts made to the charity in the tax year and in respect of which it has made successful gift aid exemption claims.

(6) The "specified amount" for a charity for a tax year is £5,000.

(7) This section is subject to sections 4, 6 and 9 (connected charities and charities

running charitable activities in community buildings).

Explanatory notes

Clause 1 provides when a top-up payment is payable and how to calculate the amount due.

 

Subsection (1) of clause 1 stipulates the conditions for when a charity or CASC is entitled to a top-up payment from HMRC. Clause 17(1) provides that a "charity" includes CASCs and certain other bodies. In particular the charity or CASC must be an eligible charity or CASC for a tax year and make a successful Gift Aid exemption claim in respect of gifts made to it in the tax year and it must make a claim in respect of small donations made to it in the same tax year.

 

Subsection (2) of clause 1 provides a formula for calculating the amount of a top-up payment. The amount payable is based on the basic rate of income tax so, for example, a small donation of £1 attracts a top-up payment of 25p where the basic rate of income tax is 20%.

 

Subsections (3) to (5) of clause 1 restrict the amount of top-up payments a charity or CASC may claim by reference to a "maximum donations limit". The maximum donations limit on top-up payments is normally £5,000 of small donations collected in each year, subject to certain conditions for charities and CASCs set out in clauses 4, 6 and 9. The amount of small donations on which a top-up payment may be claimed is restricted to twice the amount of donations on which the charity or CASC claims Gift Aid for the same tax year. The effect of this provision is to require Gift Aid donations to be matched to small donations at a rate of 50%. So a charity or CASC making a top-up payment claim in respect of £5,000 of small donations must make a claim for Gift Aid on at least £2,500 of other donations received in the same tax year.

 

Summary of comments

The comments on clause 1 focused on subsection 4, which introduces the matching principle. This requires the ratio of the amount of small donations on which top-up payments are claimed to the amount of donations on which Gift Aid is claimed in the same tax year to be no more than 2:1 – so, for example, a charity claiming on £5,000 of small donations would need to have claimed at least £2,500 of Gift Aid in the same tax year. The comments from respondents on this clause largely objected to the inclusion of this requirement on top of the eligibility criteria (see clause 2 below) as a protection against fraud. The principal arguments were that this requirement will exclude many charities, especially small charities, who claim little or no Gift Aid at present.

Government response

The matching principle is a necessary element of the scheme that has been introduced to protect the scheme from fraud and protect taxpayers’ money. Unfortunately, the scheme is at risk from fraud and is more open to abuse than Gift Aid due to the reduced audit trail on donations.

The organisation’s continuing compliance with Gift Aid, and HM Revenue and Customs’ (HMRC) ability to check a number of claims, is the closest proxy to help assure compliance under the new scheme. Requiring a number of Gift Aid claims to be made, which includes the provision of donor declarations, alongside claims for top-up payments, will significantly increase protection against fraud and abuse. This is because it will reduce the attractiveness of the scheme for fraudsters, as claiming Gift Aid would require them to run the risk of HMRC conducting due diligence on the detail of their claims and exposing any irregularities.

A number of charities and sector representatives had raised concerns about the level of matching required during the consultation on the scheme, where we had set out our original proposal of £1 of small donations claims to be matched with £1 of Gift Aid claims. We listened to those concerns and so reduced the degree of matching from 100% to 50%. However, an element of matching remains vital to ensuring the scheme is protected from fraudsters and the small minority who seek to take advantage of the generous tax reliefs on offer to charities.

Clause 2: meaning of "eligible charity"

(1) A charity is an eligible charity for a tax year if-

(a) it has made a successful gift aid exemption claim in at least 3 of the

previous 7 tax years, and

(b) the charity’s start-up period expired before that year.

(2) If a charity did not make any successful gift aid exemption claims in a period

of 3 consecutive tax years, any claim made in an earlier tax year is to be

disregarded for the purposes of subsection (1)(a).

(3) A charity on which a penalty has been imposed in connection with a gift aid

exemption claim or top-up claim made by the charity is not an eligible

charity-

(a) for the tax year in which the claim was made, or

(b) for the next 2 tax years,

(even if the penalty was imposed after the tax year in which the claim was made).

(4) For the purposes of this section-

(a) a charity’s "start-up period" is the first period of 3 consecutive tax years

during which it is, at all times, a charity (as defined by section 17(1));

(b) "penalty" means a penalty under-

(i) Schedule 24 to the Finance Act 2007, or

(ii) regulations under section 11.

Explanatory notes

Clause 2 defines the eligibility conditions for a charity or CASC to be entitled to a top-up payment under clause 1. Subsections (1) and (2) state the two main conditions to be met:

 

· the charity or CASC must have made a successful Gift Aid exemption claim in at least three of the previous seven tax years, and there must not have been a period between claims of more than two complete tax years, and

 

· the charity or CASC must have been in existence for at least three complete tax years.

 

The first condition at subsection (1) of clause 2 considers a charity’s or CASC’s Gift Aid exemption claim activity over a seven year period, and requires three successful

claims during this period. Subsection (2) requires that, when considering the number

of Gift Aid exemption claims made over a seven year period, there must not have

been a period between claims of three or more consecutive tax years if the earlier

claim is to be taken into consideration. So a successful Gift Aid exemption claim

made in the 2008/09 tax year can not be considered as one of the three successful

claims, if the next claim was not made until the tax year 2012/13.

The effect of these provisions is to ensure that the charity or CASC has a good, recent, track record of making Gift Aid exemption claims in order to be eligible to make claims under GASDS. The conditions allow a charity or CASC to demonstrate their compliance even if they do not make Gift Aid exemption claims every year.

For example, Charity A is a long established charity and has made successful Gift Aid exemption claims in each of the tax years 2010-11, 2011-12 and 2012-13. Charity A will be eligible to make a claim under the GASDS on small donations collected from

6 April 2013 (the tax year 2013/14).

Charity B has made successful Gift Aid exemption claims in each of the tax years

2010-11, 2011-12 and 2015-16. There have been three consecutive years, 2012-13 to

2014-15 in which Charity B has not made a Gift Aid exemption claim. Therefore

Charity B is not eligible to make a GASDS claim until it has made at least two more

successful Gift Aid exemption claims in the years 2016-17 onwards, so long as the

gap between making a claim is not three tax years or more. Claims made before the

three year gap do not qualify.

For the purposes of the eligibility conditions in clause 2, Gift Aid exemption claims

made in a tax year do not need to be made in respect of donations received in that tax year. However, for the purposes of matching Gift Aid donations to GASDS donations in clause 1, the matched Gift Aid donations must be received in the same tax year as the GASDS donations.

A "successful" Gift Aid exemption claim is defined in clause 17 and is a claim made

by the charity or CASC which has resulted in an amount falling to be exempt from

income tax or corporation tax as a result of the claim. Under subsection (3) of clause

2, any penalty incurred in respect of a Gift Aid exemption claim or top-up claim will

disqualify the organisation from entitlement to a top-up payment for the tax year in

which the claim was made, and the following two tax years. A penalty is defined in

subsection (4) as a penalty under Schedule 24 to Finance Act (FA) 2007 for Gift Aid

exemption claims or a penalty under the regulations that will be made under clause 11 in respect of claims to top-up payments. It is intended that the penalty provisions

under clause 11 will mirror those in Schedule 24 FA 2007 that apply to Gift Aid exemption claims.

Summary of comments

Clause 2 introduces the concept of a ‘start-up’ period for a charity becoming eligible to claim for top-up payments under the new scheme, requiring them to have successfully claimed Gift Aid in at least 3 of the last 7 years. Many of those commenting on the clause recognised the necessity of this element of the scheme in order to protect against fraud. However, it was widely argued that this requirement was excessive and that it would exclude a number of small and start-up charities. A number of organisations suggested a ‘probationary’ period where charities who do not yet have 3 years of successful Gift Aid claims could claim a lower level of payments on small donations until they become fully eligible. Another respondent suggested an alternative approach might be for HMRC to use Charity Commission records of accounts submitted by charities to check for fraud, rather than the matching and eligibility criteria linking small donations claims to Gift Aid claims.

Government response

Alongside the matching element, the three year eligibility period is another key feature of the scheme to ensure it is protected from fraud. If charities are required to operate Gift Aid correctly for the three years before claiming payments under the new scheme, this means that the charity will have been subject to HMRC checking and tests. Therefore HMRC can be more certain that the charity is genuine for the purposes of claiming under the new scheme and the people acting on behalf of the charity will comply with the rules.

Reducing the lead-in time would increase the cost of the scheme and inevitably increase the amount of payments made on fraudulent claims. Introducing a probationary period would not only increase the cost of the scheme, but also introduce significant further complexity to the scheme, both for charities and for HMRC administering the scheme.

Not all charities submit accounts to the Charity Commission or their equivalent charity regulator in other parts of the UK. HMRC does not ask all charities to submit accounts every year. The only way for HMRC to check whether a charity’s accounts are correct would be to require charities to submit a tax return and open an enquiry into a tax return, including checking that any Gift Aid claims were made correctly. This would represent a significant increased administrative burden on charities and HMRC. A lead-in time would still be required. Checking a charity’s compliance with Gift Aid is the most direct and light touch method of predicting the charity’s compliance behaviour in relation the new scheme.

Clause 6: charities running charitable activities in community buildings and

Clause 7: meaning of ‘running charitable activities in a community building etc

6

(1) This section determines the specified amount for the purposes of section 1(4)

for a charity that runs charitable activities in one or more community buildings in a tax year (see sections 7 and 8 for the meaning of certain terms used in this

section).

(2) The specified amount for the charity for the tax year is an amount equal to-

(a) the sum of the amounts which, for each community building in which

the charitable activities are run, is the community building amount,

plus

(b) the remaining amount.

(3) The "community building amount", in relation to a community building,

means-

(a) the sum of the small donations that are made to the charity in the

community building in the tax year while it is running charitable

activities in the building, or

(b) if less, £5,000.

(4) The "remaining amount" means-

(a) the sum of the remaining donations made to the charity in the tax year,

or

(b) if less, £5,000.

(5) "Remaining donations", in relation to a charity and a tax year, means the small

donations made to the charity in the tax year other than any made to it in

community buildings in the tax year while it is running charitable activities in

the buildings.

(6) Section 9 modifies this section as it applies to a charity that is connected with

another eligible charity.

and

7

(1) For the purposes of this Act a charity "runs" charitable activities in a

community building in a tax year if it carries out charitable activities with a

group of 10 or more people in the building on 6 or more occasions in the tax

year (and references to donations made to a charity "while" it is running

charitable activities in a community building are to be construed accordingly).

(2) For this purpose-

(a) the reference to a group of 10 or more people does not include staff of

the charity;

(b) the people forming the group need not be the same on any two of the

occasions.

(3) "Staff", in relation to a charity, means-

(a) a volunteer working for the charity who is not in the class of persons for

whose benefit the charitable activities are being carried out,

(b) persons employed by or otherwise working for the charity (other than

volunteers), and

(c) any officers or trustees of the charity.

(4) HMRC may by order amend the numbers for the time being specified in

subsections (1) and (2)(a).

(5) In this Act "charitable activity" means an activity carried out for a charitable

purpose, other than primarily for the purpose of fund-raising.

(6) In this Act a reference to a "charity" that runs charitable activities does not

include a registered club within the meaning of Chapter 9 of Part 13 of the

Corporation Tax Act 2010 that runs such activities.

Explanatory notes

Clause 6 increases the "specified amount" for charities that run charitable activities in community buildings. Clause 7 defines what is meant by the term "running charitable activities". The purpose of these provisions is to increase the entitlement of charities that deliver their charitable activities through community groups. Clause 6 provides a similar specified amount for charities carrying out similar activities in the local community but where the charities are structured differently. So, for example, without this provision or the connected charity provision, a charity that is centralised and operates through local community groups would be limited to a maximum donations limit of just £5,000 (there is just one parent charity). This position would contrast with the situation of a charity carrying out similar activities that operates in the local community through a number of local charities under its control which, without this provision, would be entitled to a specified amount of £5,000 for each of the local charities as well as the £5,000 specified amount for the parent charity.

Subsection (2) of clause 6 provides that the specified amount of a charity which undertakes charitable activities in a community building is made up of two parts.

· The first part consists of the small donations made to it in a community building while it is running its charitable activities. Subsection (3) determines that this amount is capped by the total amount of small donations received in the community building, or at £5,000, whichever is the lower amount.

· The second part of the specified amount consists of the "remaining amount" which subsections (4) and (5) together define as the balance of other small donations not received in a community building while it is running charitable activities or £5,000, whichever is the lower amount.

For example, a medical charity established to support people who suffer from a

specific condition undertakes monthly meetings in two community buildings and

receives small donations from attendees during the meetings. In addition, the charity undertakes a street collection twice a year to help raise funds to support its work. The charity would be entitled to make a claim in respect of up to £5,000 of small donations received in each of the two community buildings, plus up to a further £5,000 in respect of the street collections. So the charity would, in total, be eligible to make a claim in respect of up to £15,000 small donations.

If, in one of the community buildings, the group collects £6,000 of small donations in a year and in the other community building the group collects £1,000 in small

donations in the same year then the maximum limit of the charity will be up to £5,000 (the "remaining amount") in respect of street collections plus £5,000 collected in one community building (£6,000 received, capped at £5,000) plus £1,000 received in the other community building, that is, a total of up to £11,000.

Clause 7 explains what is meant by a charity "running charitable activities in a

community building" for the purposes of clauses 6 and 9. This does not include

CASCs so a CASC does not benefit from an increased entitlement on account of

community buildings. Each CASC is entitled to a specified amount under clause 1 of

£5,000 only.

In essence, "running charitable activities in a community building" means the charity must carry out charitable activities for a local group of beneficiaries of the charity in the same building on at least six occasions each year. Subsection (1) sets out the basic conditions that must be met, including a requirement that meetings are held on a minimum of six occasions each year when the charitable activities take place in a community building and a minimum of 10 people must attend on each occasion. The purpose of the conditions is to define the characteristics that would apply to a local group of a charity that had its own local identity and was recognised publicly as a discrete group of the charity.

The minimum number of 10 people who attend the activities must not be staff of the charity, which includes volunteers, employees, officers and trustees of the charity.

Subsection (3)(a) relaxes this position to the extent that volunteers who attend a meeting and who are benefitting from the charitable activities as a beneficiary, can be counted as a member of the group. In effect, because the activities must be charitable activities, the people who make up a group must be beneficiaries of the charity. It is not necessary for the same people to attend each of the group activities throughout the year. The requirements of the group listed here are designed to ensure that the meetings held by the charity in running its charitable activities are more than just, say, planning meetings in which the administrative affairs of the charity are discussed and also to deter the organisation of meetings just to benefit the charity with an increased entitlement under clause 6.

Subsection (4) of clause 7 gives HMRC the power to vary the minimum number of people who must attend meetings and the minimum number of occasions during the year that the meetings must take place. The Bill currently specifies that meetings must be of a group of 10 or more people, and meetings must be held on 6 or more occasions during the year.

Subsection (5) of clause 7 states that for the purposes of the scheme, reference to "charitable activities" is a reference to those activities carried out by a charity under its charitable objective but excludes activities that are carried out primarily for the purpose of fund raising. This means charities only receive an increased entitlement in respect of community buildings where the activity undertaken in those buildings is in fact part of the charity delivering its charitable objectives for the benefit of the charity’s beneficiaries, rather than raising funds.

Summary of comments

Clauses 6 and 7 are linked and respondents cross-referred their comments across these, and across a number of subsections within clause 7. The comments focused not on specific provisions within the Bill but rather on a broader perception that the community building rules are overly complex and are clearly designed to benefit churches. Respondents argued that, whilst the rules help provide a fair outcome between these types of charities that have different structures, it means that they are advantaged over other charitable causes who have local groups that do not have the same characteristics and so will not be able to qualify. It was argued that the premise of the collections happening while the charitable activity is taking place means that those charities whose beneficiaries come from a different constituency to their donors will not be able to claim a top-up payment on so many donations. The requirement for 10 people meeting at least 6 times a year (clause 7, subsection 2a) for qualification under the rule was also criticised as excluding those charities whose activities include smaller numbers of beneficiaries. Equally the requirement that this group of 10 did not include a charity’s staff or trustees was commented on as inadvertently excluding a number of organisations from qualifying under the rule.

Government response

The principal rationale for the community building rules is to fulfil the original intention of the scheme that each eligible charity should be entitled to a top-up payment on a maximum of £5,000 small donations. There are some situations where, without making special provision as we have, the £5,000 per charity limit would lead to very significantly unfair results because similar charitable organisations have chosen to structure themselves differently. Some organisations might be able to access top-up payments on hundreds, perhaps thousands, of times more donations than other organisations that are, to all intents and purposes, very similar.

The Government decided that such a marked difference was unfair, and decided to define in law what a local group of a charity looked like. For such a definition to work well in law, the group needed a tangible, identifiable feature. Defining a local group by reference to a building provides a workable definition, so that is the approach taken.

It was never the intention of the rules to allow all charities that operate out of a building or have local groups to be able to gain an additional £5,000 allowance per group or building for small donations claims. All charities that are eligible for the scheme are able to claim up to £5,000 of small donations collected anywhere, not just during charitable activities undertaken in a community building, subject to the connected charities rule. The community building rules simply introduce an additional element to ensure that significant unfairness between similar charities with different structures is avoided as far as possible.

The Government has considered the concerns of respondents and has brought forward a package of amendments on the detail of the community building rules – these are set out under the following section.

Clause 8: meaning of ‘community building’

(1) In this Act "community building"-

(a) means a building (such as a village hall, town hall or place of worship),

or those parts of it, to which the public or a section of the public have

access at some or all times, but

(b) does not include a building, or any parts of it, used wholly or mainly

for commercial or residential purposes.

(2) Where a person holds a freehold or leasehold interest in land, any two or more

buildings on the land, or on any adjoining land in which the person holds such

an interest, are to be treated as a single building for the purposes of this Act.

(3) HMRC may by order-

(a) provide for cases in which a building, or part of it, is or is not to be

treated as a community building or as part of a community building for

the purposes of this Act;

(b) provide for cases in which 2 or more buildings in the same vicinity are

to be treated as a single building for the purposes of this Act.

(4) Provision under subsection (3) may be framed by reference to a description of

building, the use to which it is put or any other circumstances; and the

provision may be framed so as to apply at all times or at certain times only.

(5) In the application of this section to Scotland-

(a) a reference to a freehold interest in land is to the interest of the owner,

and

(b) a reference to a leasehold interest in land is to a tenant’s right over or

interest in a property subject to a lease.

Explanatory note

Clause 8 defines a "community building" for the purpose of the scheme. Subsection

(1)(a) gives some examples of the types of community building that are likely to qualify under the scheme but this list is not intended to be definitive. The public or a section of the public must have access to the building, or those parts of it, in which the charitable activities are taking place. Subsection (1)(b) specifically excludes a building, or those parts of it used wholly or mainly for commercial or residential purposes. As a result, charity shops and residential care homes, for example, are not community buildings for the purpose of this clause.

Subsection (2) of clause 8 treats as a single building two or more buildings on the same or adjacent land where the same person holds a freehold or leasehold interest in the land. Subsection (5) applies this principle to interest in land held in Scotland.

Subsections (3) and (4) of clause 8 give HMRC the power to make an order providing that in specified circumstances a building is, or is not, to be treated as a community building, and to specify circumstances when two or more buildings in the same vicinity are to be treated as a single building.

The purpose of subsections (2) and (3) is to prevent charities seeking to increase their entitlement to the specified amount by appearing to run several different local groups in different community buildings on the same site where, in fact, there is just one group. For example a school may have six buildings on the school site but can only claim for one single community building, not six. The power contained in subsection (3) provides the flexibility for HMRC to widen or narrow the definition of a community building in clause 8 should evidence come to light that certain buildings ought, or ought not, to be treated as a community building.

Summary of comments

Further to the comments on clauses 6 and 7 outlined above, the restriction on residential and commercial properties from being community buildings in clause 8 subsection 1 (a) received some detailed comments. This provision was criticised for excluding certain buildings such as residential care homes, and discriminating against charities that hire commercial meeting space, or where there has been a transfer of a community asset into a different form of ownership.

Government response

As noted above on clauses 6 and 7, the details of the community building rules include certain provisions to protect the scheme from exploitation. Subject to the connected charities rule, any individual charity will be able to claim on up to £5,000 of donations whether they undertake activities in a residential or commercial building, raise donations during street collections or while they are delivering charitable services to a smaller group of people. The community building element is a specific rule to deal with a specific problem of significant unfairness, and should not distract from the wider benefit of the scheme for the many tens of thousands of charities who will use it every year. The community building rules are not intended to allow every charity that uses a building to treat it as a community building.

Further, extending the community building rule to residential buildings would open up the scheme to serious abuse. However, charities with residential buildings are only excluded from an increased entitlement under the community building rule. They would, subject to the connected charity rule, still be entitled to a £5,000 allowance as an independent charity.

The Government has looked again at the detail of the community building rules in light of the comments on clauses 6, 7 and 8 of the Bill to see whether some simplifications can be made. Whilst there is a necessary level of detailed rules set out in the legislation to avoid the exploitation of the provision and to protect the Exchequer, we have looked again at whether there can be some simplification of the rule. We have therefore brought forward a package of measures that will:

· enable commercial, but not retail, buildings to be classified as community buildings, coupled with a restriction on charging entry fees to community buildings

· clarify that the small donations collected in a community building must be from the participants in the charitable activity

· allow staff and trustees of charities attending meetings as beneficiaries of the charity, rather than as staff or trustees, to count towards the minimum number of participants needed for a charitable activity to qualify under the community buildings rule

· clarify that where a building has mixed use – for example on different floors of a single building – then the parts used otherwise than wholly or mainly for retail or residential purposes could still qualify as a community building.

Clause 12: change of charity’s legal form

(1) Subsection (2) applies if-

(a) a charity ("the old charity") is dissolved and another charity ("the new

charity") is created,

(b) the new charity takes a different legal form to the old charity, and

(c) on an application made by the new charity, HMRC certify that, in their

opinion, the new charity is otherwise substantially the same charity as

the old charity.

(2) This Act and any relevant provisions apply as if-

(a) things done (or treated, by virtue of this section, as having been done)

by or in relation to the old charity had been done by or in relation to the

new charity;

(b) the new charity had been created when the old charity was created (or

is treated, by virtue of this section, as having been created).

(3) In subsection (2) "relevant provision" means a provision of regulations under

section 11 designated by regulations under that section as a relevant provision

for the purposes of this section.

(4) In deciding whether to issue a certificate, HMRC must have regard in

particular to-

(a) the purposes of each of the charities,

(b) the control and management of each of the charities, and

(c) the extent to which the property of the old charity has been transferred

to the new charity.

(5) HMRC must issue such guidance as they consider appropriate about the

exercise of their functions under this section.

(6) Regulations under section 11 may in particular make provision-

(a) about the form and contents of applications under this section;

(b) requiring an application to be made no later than a prescribed period

after the dissolution of the old charity;

(c) for appeals against a refusal to issue a certificate under this section.

Explanatory note

Clause 12 provides for charities or CASCs that change their legal form. It enables the new charity or CASC to benefit from its predecessor’s Gift Aid compliance history when deciding the eligibility of the charity or CASC in its new legal form under clause 2. The new charity or CASC must apply to HMRC for the provision to apply.

So, for example, a charitable trust successfully operating Gift Aid for four years may decide to incorporate, and become a charitable company in year five. This clause allows HMRC to consider the activity of the charitable trust in determining the eligibility of the charitable company. Where the application is accepted, the new organisation would not need to wait for three complete tax years before satisfying the eligibility criteria and can rely on any good compliance history attributable to the old organisation.

Summary of comments

This provision in the Bill was broadly welcomed by those who commented. However one organisation suggested the provision be broadened to allow merged charities to retain the Gift Aid record of the original charities, even where the legal form remains the same but the new charity takes on a new and distinct identity to its predecessors.

Government response

We have considered this issue and will shortly introduce a new provision into the Bill to allow newly-merged charities to qualify for the scheme where all pre-merger charities have the requisite Gift Aid track record. We cannot legislate for every variation of merger between charities, as we need to remain assured that all parties in the new organisation are able to correctly claim Gift Aid and providing for every variation would increase further the complexity of the rules. However, this new provision will enable many charities that merge to continue to benefit from the scheme where they may not have been able to previously.

Clause 13: power to alter specified amount etc.

(1) The Treasury may by order amend-

(a) section 1(6) (the specified amount),

(b) section 4(3)(a),

(c) section 6(3)(b) and (4)(b), and

(d) section 9(4)(b),

by substituting a different sum for the sum for the time being specified in each of those provisions.

(2) The Treasury may by order amend paragraph 1(1) and (2) of the Schedule

(limit on value of individual donations) by substituting a different sum for the sum for the time being specified in each of those provisions.

Explanatory note

Clause 13 gives the Treasury the power to vary the monetary amounts specified in the

Bill. These are the "specified amount" for a tax year which is currently set at £5,000 and the amount of a "small donation" in the Schedule which is currently set at £20.

Summary of comments

The Bill give powers to the Treasury to amend certain values in the legislation by secondary legislation, rather than requiring new primary legislation, and many respondents welcomed the flexibility this power would bring. However, there was some concern raised by commenting organisations that it could allow the Government to reduce the generosity of the scheme with little or no consultation. This was a particular concern because of the status of the scheme as a public spending measure.

Government response

The Gift Aid Small Donations Scheme is a public spending measure rather than a tax relief, any future adjustments to the scheme that require primary legislation cannot be made through the annual Finance Bill process but would require the introduction of separate legislation. This is likely to be time consuming and depends on the Parliamentary timetable having space for such legislation. There is therefore a risk that the various limits within the scheme become outdated and do not reflect current policy intentions. The power is therefore being included in the Bill to provide future flexibility for the design of the scheme without needing primary legislation, but there are no current plans to use the power. Any change brought about using this power would need to be agreed by Parliament under the affirmative procedure, so it would be subject to debate by MPs.

Schedule: meaning of ‘small donation’: conditions

Small cash payment

1 (1) The gift must be £20 or less in cash.

(2) Where a gift of cash is made to the charity and its managers do not know

whether the gift is £20 or less, the condition in sub-paragraph (1) is to be treated as met if the managers have taken reasonable steps to find out.

(3) In this paragraph-

"cash" means coins and notes in any currency;

"managers", in relation to a charity, means the persons having the

general control and management of the administration of the charity.

Explanatory note

The Schedule sets out the conditions that must be met in order for a donation to be a small donation on which a top-up payment may be claimed under the scheme. In particular a donation must be a cash donation of £20 or less, and collected and banked in the UK. A small donation is not eligible for tax relief either in the hands of the donor or in the hands of the charity or CASC (note that the donation is not taxable income in the hands of the charity or CASC). So a donation on which Gift Aid relief has been claimed cannot come within this scheme.

Summary of comments

There was some criticism by respondents of the restriction of qualifying small donations under the scheme to cash only. A number of organisations recommended that the scheme reflect Gift Aid to allow donations of all forms, in particular text and cheque donations, as it is sometimes difficult to gain a Gift Aid declaration on these donations as well.

Government response

The purpose of the Small Donations Scheme is to provide a Gift Aid-style top-up payment on those donations where it is difficult or unduly burdensome to gain a Gift Aid declaration. Cash donations dropped into a bucket or collection plate fall within this description. It would be a significant further step for every donor to be stopped and asked to fill in a declaration when, for example, donating £1 to the British Legion poppy collection. However where a donor is giving by text or through a cheque, for example, they are already  giving their details to the charity and the extra amount of information needed to make a Gift Aid declaration is therefore relatively small.

The purpose of the scheme is to fill a gap where Gift Aid, for practical purposes, cannot reasonably apply at present. The inclusion of text or cheque donations would stretch the purpose of the scheme in a way that was not intended.

October 2012

Prepared 16th October 2012