GAIN (Gift Aid Recovery Consultants)

Memorandum submitted by GAIN (SCD 08)

SUMMARY

1. The proposal is for abandoning the whole 'community building' scheme and the anti fraud measures including 3 years claims in last 7, ratios of Gift Aid previously claimed , 'connected persons/building' and other measures, and replacing these with two simple controls

1.1. The adaptation of the registering and monitoring system used by the now defunct Self Assessment Giving scheme

1.2. The application of third party validation used by auditors and accountants in submission of returns and provided by agencies such as Payroll Giving Agencies, and even in other areas such a garages licensed to carry out MOT and the Post Office in checking passport applications

I. Credentials

 

2. GAIN , is a consultancy specializing in all aspects of Gift Aid including Gift Aid recovery and the use of Gift Aid in new and innovative applications. GAIN has been involved in a number of innovative applications of Gift Aid including Gift Aid on recycled cartridges and the application of Gift Aid to discount on loyalty cards. We have also obtained HMRC approval for applications of Gift Aid which may not normally be thought of as qualifying for Gift Aid such as Gift Aid on lucky draw competition, and the making of a Gift Aid Declaration which is non-written, non-electronic and non oral ( the so called 4th Gift Aid Declaration ).

3. GAIN is run by Barry Gower who has been assisting charities with Gift Aid and Gift Aid recovery for over 10 years. In addition to his work in this field, Barry has a commercial background, having worked with a company in international finance, and spent 6 years in management consulting. Barry is also a professional Civil Engineer with an MBA

II. GASDS: the alternative proposal

 

1. A great deal has already been written regarding the complexity of the Bill and how many of the Third Sector leaders are concerned about this, to the point that the view has been expressed that charities, particularly small charities will find it too daunting and will not take it up.

2. The second reading goes into some of these issues in great detail and discussion. However rather than try and address any of them in particularly, I would like to submit an alternative approach to address what I consider to be the two main stumbling block areas, namely

2.1. the community building' scheme and

2.2. the 'anti fraud measures' including 3 years claims in last 7, level of fines and penalties, 'connected persons/building/whatever'

3. This will be replaced with 2 simple controls

3.1. The adaptation of the registering and monitoring system used by the now defunct Self Assessment Giving scheme

3.2. The application of third party validation used by auditors and accountants in submission of returns and provided by agencies such as Payroll Giving Agencies, and even in other areas such a garages licensed to carry out MOT and the Post Office in checking passport applications

4. The Alternative Proposal would incorporate these two controls into a structure along the following lines:

5. Charities wishing to participate in GASDS would need to register with HMRC. This is not a major problem as the systems and procedures are effectively all in place in the now defunct Self Assessment Giving Scheme .

6. The defunct Self Assessment Giving Scheme would be modified to record the type of information that HMRC would need (and have the expertise in) to manage the system.

7. Claims : Charities submitting the single basic top-up claim of £5000 would supply basic details of their charitable activities and the location or methods used to collect the £5000 donations qualifying for GASDS

8. Charities submitting claims for the additional amounts for carrying out their charitable activities in what were previously defined as ’community buildings’ will need to supply additional information on these activities. Whilst this may appear at first to be an onerous task, a charity which is carrying out such an activity will, for its own sake need to have some basic records. This could include

8.1. Date and location of event

8.2. Members of charity attending and running event

8.3. Approximate number of people attending event

9. Based on this and other information it would not be too difficult to monitor potential fraud using techniques developed with normal Gift Aid

10. To reduce further the opportunity for fraud, the concept of certification of the submission will be introduced. Claims above a certain level, in number or value or perhaps both, will need to be checked by a certified body, such as an auditor or accountant. This will not need to be a vigorous check, and can possibly be reduced to a one or two page set of questions, which can be reviewed by a trainee accountant . This can be compared to the service offered by the Post Office counters in checking passport and other applications and for which a fee is charged.

11. Accountants and other tax advisors will be able to be trained and certified to undertake this work in a way similar to Payroll Giving Agencies or indeed MOT garages

12. Finally unlike Gift Aid, this is not a tax repayment or tax relief, but rather from the public purse. Whilst I am not sure exactly what that means it is clear that this will be directly under the control, and almost that the discretion, of HMRC. It should not be beyond the powers of HMRC to be able to operate this scheme such that any claims which it judges to be suspect can be rejected until proven otherwise.

13. The comments and proposals contained in this submission are not intended in any way to be absolute or definitive, but rather a starting point for developing the GASDS into a far more workable and attractive scheme for achieving its stated objective which is to allow charities to collect a Gift Aid type payment on donations which otherwise would have to forego this additional income.

14. Attached hereto is an additional document entitled An alternative approach to GASDS 31 August 2012 which provides additional background and information on these proposals.

An alternative approach to GASDS

31 August 2012

III. Introduction

 

15. The proposed Gift Aid on Small Donations Scheme (GASDS) has created much confusion and concern in the charity sector. In particular, there is a very real concern that the proposed Scheme is too complicated and complex and will result in charities being put off and not using it at all. Meetings are proposed between the Third Sector governing bodies and the government representatives, and this paper presents GAIN’s proposals for an alternative approach.

IV. Gift Aid and the proposed GASDS

 

16. Perhaps the first issue is the confusion between Gift Aid, a well established concept and the new proposed GASDS. Some of the key differences are as follows:

16.1. Gift Aid is a tax repayment, GASDS is a payment from public spending and essentially, although administered by HMRC, comes from a different purse.

16.2. The time periods for claiming Gift Aid and GASDS are different, both in terms of dates and duration

16.3. Gift Aid is essentially an evidence based system, whereas GASDS is more based on activity and honesty, and consequently most susceptible to fraud.

17. In order to make the system less confusing, especially with the existing Gift Aid scheme, it may be preferable to have a different name. One suggestion is Small Cash Donations Incentive Scheme ("SCaDIS"), which will remove the Gift Aid aspect and hopefully the factors hat may deter some charities from the scheme.

V. The complexity of the ‘Community Building’ concept.

 

18. The need for a method of defining the situation where charities, or branches thereof are providing their services to different groups. Clearly this has emerge from the situation in churches, where in some cases there is a single mother church, and in other cases each church community is a separate charity. Whilst the community building concept will deal with this situation, it would appear equally that there are many examples of charities where branches provide their services to communities but not in public buildings. Some examples could include:

18.1. Travelling medical activities, such a cancer screening or blood donating and testing, which are done in mobile caravans or in office facilities such as board rooms or training centres.

18.2. Arts orientated charities which promote their objectives with free performances and exhibitions in whatever buildings are available – school halls, pubs, tents etc, and rely on donations.

18.3. Groups, especially medical groups which provide support to people who have suffered and who meet regularly. Because of the nature of the suffering, this is likely to take place in a more specific or comfortable environment, such as a hospital meeting room or a private home. Examples could include cancer groups, still birth organisations and other trauma charities.

19. The limitation of the community building would seem to be far too restrictive and off-putting in these cases. Whilst it is acknowledged that a major consideration for the Scheme is the avoidance of fraud, it is equally intended that the Scheme should be as open and accessible to as many qualifying charities as possible.

20. It is therefore suggested that the existing concept of a ‘community building’ is revised to account for charities which do not fall into this category. Charities would instead have to define what they intended to do and where, in the equivalent of a ‘community building’ they proposed to carry out their activities. This would then be recorded on their registration ( as detailed below) and reported on their claim in a similar way that information is recorded on a personal SA return.

VI. The management of the scheme.

 

21. As noted, one of the major concerns of the Scheme is the avoidance, as far as possible, of fraud. At the same time, it is important to make the Scheme widely accessible and at the same time as un-daunting as possible. Some suggestions as to achieving this could include the following

VI.a. The utilisation of third party validation

22. The concept of using qualified third parties to undertake checking and validation on behalf of the authorities is well defined. Payroll Giving Agencies manage and administer payroll giving, and accountancy practices undertake much of the preparation of the forms on which HMRC bases their tax calculations, and on a smaller scale, the Post Office will, for a fee, check a passport application.

23. A similar approach could be taken for charities wishing to participate in the scheme. It is assumed that a level of registration will be required, similar to the Gift Aid ChA1 form

24. The suggestion is that appropriate organisations (e.g. accountants charity advisors etc) be authorised to counter-sign such applications, which would help ensure that the applicants understood the more complex requirements such as the ‘ community building requirement’ and the connected charity concept. This would be a paid-for service, possible along the lines of the MOT for motor cars

VI.b. General tracking and trends.

25. By its very nature, taxation is based on assessment, rather than an exact calculation. In many cases, it is necessary for tax to be based on projected incomes and a provisional amount paid. In a similar way, charities wishing to utilise the concept of groups through a central charity would need to register or record the groups with HMRC and, based on past performance, an estimate of the potential claim could be made. Any significant variations would then be identified and action taken accordingly.

VII. Summary.

 

26. The concept of a scheme which will provide Gift Aid on small cash donations caused great excitement in the charity sector, especially amongst smaller charities. This quickly disappeared when the conditions showed that tjhis was not a quick gift of £1250 on a lump sum of £5000, but quite an onerous process requiring a track record of Gift Aid activity as well as compliance for what may be a relatively small return. In addition the concept of ‘community building’ could exclude a large number of charities which are genuinely providing their charitable services to remote sections of the community, but just in different kinds of building and locations. It is hoped that the suggestions submitted her will help remove these restrictions as well as some of the more onerous administration aspects and so allow a greater range of charities to participate in this innovative scheme as well.

October 2012

Prepared 24th October 2012