Small Charitable Donations Bill

Memorandum submitted by FSI (SCD 09)

1. Introduction

1.1. The FSI is a charity which exists to give other small charities the strategic support they need to keep their doors open and be there for millions of individuals, families, communities and other causes that desperately need their help. As of August 2012, 1,546 small charities were signed up to receive the £2.2 million of free services that we deliver each year.

1.2. This report is informed by the FSI’s specialist knowledge of the Small Charity Sector, as well as by those who will be impacted by the new legislation. The evidence we have gathered is drawn from the respondents to a survey submitted to our membership, all of whom are part of the Small Charity Sector, as well as from referenced sources.

1.3. Based on this evidence, the FSI has formulated the following key comments in relation to the Small Charitable Donations Bill:

· The FSI is supportive of the introduction of top-up payments for small gifts. However, as the legislation stands we believe that it will be ineffective for small charities that could benefit the most from this legislation.

· Small charities already have significant difficulties accessing the Gift Aid system. Due to the complex design of the new proposals for a Gift Aid Small Donations Scheme (GASDS), we believe that small charities will be frozen out of the system, even though they stand to gain the most.

· We believe that this legislation should not be targeted at a specific part of the charity sector, but open to all. We therefore believe that the legislation must not penalise those charities which do not already claim Gift Aid.

· The "matching principle" stands to impact unfairly small charities that do not claim considerable amounts of Gift Aid. As such, we believe that the GASDS to Gift Aid ratio should be reduced further from 2:1 to 5:1. This would mean for every £5 of top-up payment claimed, £1 of Gift Aid must be claimed.

· The FSI believes that the principle demanding that charities must have successfully claimed Gift Aid for 3 out of 7 years unfairly impacts on small charities that do not have the capacity to effectively deal with the Gift Aid process.

· The FSI believes that although an effort to prevent fraud must be taken seriously, the complexity of the legislation may make it self-defeating. There are already effective anti-fraud measures in place for charities and Gift Aid.

1.4 Based on the concerns that we have highlighted here, we hope to encourage the government to adopt a simplified version of the legislation which is more open to small charities that stand to gain the most from this scheme.

2. The Small Charity Sector and Accessibility to the Gift Aid Small Donations Scheme

2.1. The purpose of the proposed legislation is to extend the remit of the Gift Aid system, in order for small gifts to charity to be eligible for a Gift Aid-type "top-up payment". Given that this Bill is aimed at increasing the value of small donations up to a maximum value of £5,000, we believe that this Bill must have small charities at its heart. It is the Small Charity Sector which will potentially benefit the most from this system, as donations of £5,000 equate to substantial supplementary financial support, compared to major UK charities with a multi-million pound turnover. In order for this to effectively engage the Small Charity Sector, the proposed legislation must be simplified.

2.2. The FSI works with small charities across the country in order to support them in making the most of their resources and their workforce. As such, we are aware that many small charities do not have the capacity to deal with extra burdens on their time, such as Gift Aid payments. In many small charities, multiple roles are taken on by staff members, and the voluntary sector is, by its nature, strongly reliant on unpaid voluntary staff to carry out its services. In 2011, the NCVO reported that 10.6 million people in England formally volunteered once per month. [1] It is important to recognise, therefore, that organisational capacity is of central concern in any task demanded of a charitable organisation.

2.3. The charities that responded to our survey had very mixed experiences of the Gift Aid system. Some responses were positive, indicating that it was "simple to record Gift Aid due and make claims". However, this was not reflected across all responses. When asked the question, "To what extent do you find the Gift Aid process complicated for your small charity?", answers ranged from "very complicated" to "not at all complicated". It is clear that there was no uniform experience of the Gift Aid system. For those charities which experienced difficulties with the Gift Aid system, a lack of clarity and a lack of capacity were the main barriers to using the system effectively.

2.4. Concerning the ability for charities to effectively recover Gift Aid, one organisation responded that, "We only get Gift Aid when it’s recovered for us e.g. local giving or everyclick". This highlights the issue of capacity for small charities. The ability to recover Gift Aid is dependent on a charity having the resources and human capital to devote energy to registering for, and recovering, Gift Aid at regular intervals. For the charity in this example, the fact that they do not recover Gift Aid for themselves may mean that they claim neither significant sums, nor on a regular basis. This is one example of how a small charity may be adversely impacted by the current state of the GASDS legislation.

2.5. Another respondent also raised concerns around the issue of capacity within their organisation, commenting that the Gift Aid process was, "Time consuming for donations direct to us". However, this particular organisation also demonstrated the lack of clarity around the Gift Aid system and the difficulties of fully understanding how the process works: "[We] also had one audit where things we were told were contradicted at a later meeting we attended with a senior person from HMRC Gift Aid." Within small charitable organisations, successfully and effectively claiming Gift Aid requires resources, of which small charities are not always in possession. It is from these experiences that the FSI believes that small charities may be frozen out of the new legislation. Due to the complexity of the current system, organisations are struggling to find the resources to undertake Gift Aid donations and to understand exactly what qualifies for Gift Aid. Basing the GASDS system on Gift Aid therefore penalises charities that wish to benefit from the system but are not able to.

2.6. The information gathered from our members is also supported by a report into Gift Aid in May 2010 by the Gift Aid "Simplification Group". The group found that the "administrative burden" of applying for Gift Aid means that the process is not being used to its full potential by many small charities who are not recording all donations in the Gift Aid system. [2] This experience was not true of all respondents to our survey. One organisation commented that Gift Aid was, "A brilliantly easy system in my view". However, this same organisation suggested that, "If it’s complicated for other organisations then perhaps they keep their financial information in a format which isn’t suitable and therefore can’t pull out the information they need". The FSI believes that a new GASDS procedure which is more complex than the existing Gift Aid system will be too much of an administrative burden to be effective.

3. The Matching Principle

3.1. As the legislation stands, the "matching principle" prejudices against charities that do not claim significant amounts of Gift Aid. If a charity does not maximise its charitable donations through the Gift Aid system then the present scheme will be of little to no effect. At the moment, a charity must claim at least £2,500 of donations through Gift Aid in order to maximise the potential £5,000 available through the proposed GASDS system. As mentioned above, this relies on charities having the knowledge as well as the capacity to make these claims. For the many charities that don’t use the system, it is not because they do not wish to maximise the opportunity, but rather, because they are not able to. We do not envisage that the GASDS legislation will have a significant impact on encouraging more charities to register and use Gift Aid. As such, we believe that the "matching" principle between Gift Aid and GASDS should be amended further from a 2:1 ratio to a 5:1 ratio. We believe that this will make the legislation more accessible to the Small Charity Sector, and increase the potential for small charities to take full advantage of the GASDS scheme.

3.2. One charity that responded to the survey highlighted the difficulties of claiming significant sums of Gift Aid annually, "We only claim Gift Aid on a small amount of donations because I am never sure if we can claim gift aid on things like donations towards our annual pantomime because the families are getting something in return for their donations." The impact of the complexity of the Gift Aid system was highlighted above, and is evident again here. However, what this organisation also shows is that the amount of Gift Aid that a charity claims will depend on their fundraising strategy. The fact that this charity only raises small sums of money due to the nature of its fundraising will pose clear limitations on its ability to use the rights outlined in the Small Charitable Donations Bill. In order for small charities to genuinely benefit from this legislation, the "matching principle" must be realistic.

4. Requirement for a Successful Record of Claiming Gift Aid

4.1. The FSI has serious concerns about the implications of the requirement for charities to have "made a successful gift aid exemption claim in at least 3 of the previous 7 tax years" (Article 2.1.a, "Small Charitable Donations Bill"), in order to qualify for the GASDS proposals. We believe that this requirement will present an unfair burden on small charities that do not consistently claim Gift Aid due to the nature of their fundraising, and the organisational capacity of their charity. By requiring all charities to fulfil these criteria, the legislation risks excluding small charities that stand to gain the most from the introduction of Gift Aid on small charitable donations.

4.2. The lack of continuity in small charities claiming Gift Aid has already been highlighted above. In the case of the small charity which noted that, "we only get gift aid when it’s recovered for us, e.g. local giving or everyclick", this demonstrates that their Gift Aid record will be dictated by specific fundraising strategies. These strategies may vary over time. Relying on external organisations to manage Gift Aid also highlights that small charities do not always have the capacity to manage their own Gift Aid donations.

4.3. Another organisation came up against difficulties when trying to claim Gift Aid on a specific fundraising event, "Last year our local branch of Barclays Bank did a sponsored walk to raise money for us and got hand written Gift Aid forms completed from the donors... When I claimed Gift Aid I was told that hand written declarations are no longer accepted. After a lot of phone calls and objections from me they said that they would accept them just that once". Events like these clearly present problems to charities when trying to claim Gift Aid. Gift Aid is not always easy to claim, and the type of fundraising event will dictate how feasible it is to collect donors. Large charitable organisations tend to have wider and more varied funding streams. As a consequence of this, they do not rely on specific events in order to claim Gift Aid. Conversely, in small charities where resources have to be channelled more effectively they may be impacted by fundraising which is not successful in facilitating Gift Aid. Even though the new legislation will allow top-up payments on small donations, it cannot be effective whilst being wholly contingent upon a successful history of Gift Aid payments.

4.4. Charities which have received contradictory information about what qualifies as Gift Aid, such as the organisation that, "had one audit where things we were told were contradicted at a later meeting we attended with a senior person from HMRC Gift Aid," may not be claiming Gift Aid at all the opportunities available to them. As a consequence of this, organisations may not have the record to prove that they should qualify for the provisions in the Small Charitable Donations legislation.

4.5. Certain other organisations also highlighted that their ability to collect Gift Aid was impacted by the type of fundraising that they undertook, "We only wish there was more flexibility on being able to Gift Aid donations for services". The ability for charities to collect Gift Aid is clearly contingent on the type of fundraising that they undertake as well as the capacity of the organisation to understand and process Gift Aid donations. If the necessity of having successfully claimed Gift Aid for the previous 3 out of 7 years remains, then this threatens to penalise small charities.

4.6. Further consequences of this element of the legislation include the fact that charities which have recently been established will be unfairly impacted. It is these charities which are building up from the bottom that will stand to gain significantly from a Gift Aid type top-up payment. It is not a concern for those large organisations with a dedicated finance section of their organisation. They will have no problem in accessing the provisions in the proposed legislation. However, for those charities without this capacity, they are not always able to dedicate the time necessary to undertake the Gift Aid process in a continual manner. At present, the system is therefore not accessible enough to those that need it the most.

5. Equality Principle

5.1. Due to the problems outlined above, the FSI is concerned that the proposed legislation will not have the beneficial effect intended for small charities. The small charity sector, which has a limited uptake of Gift Aid claims, will not be able to benefit in the same way as larger charities. The legislation highlights that the GASDS scheme, "is directed at charities or CASCs that can or do claim Gift Aid". [3] However, the FSI believes that this legislation must not discriminate between beneficiary groups. If the legislation is to be effective for small charities, then it is important to address the stringent rules surrounding its link to Gift Aid.

5.2. Importantly, this legislation will only be of limited importance to large national charities, as Gift Aid type payments will only be available up to £5000. By comparison, this represents a significant sum to small charities – the underlying principle of the legislation as initially outlined. Given the difficulties of small charities in using the Gift Aid system, it is essential that their position be given prime importance. This is not the case in the legislation as it stands. If the legislation continues to keep the restrictive elements related to a charity’s history of Gift Aid claims then we believe that the legislation will remain largely ineffective. Legislation should be accessible for all component members of the voluntary sector.

6. Complexity and Anti-Fraud measures

6.1. The FSI understands the government’s concern over the risk of fraud. However, unless the complex legislation is simplified from its current form, we believe that the GASDS legislation will be of very limited effect. As such, we are concerned that the anti-fraud provisions of the legislation will be self-defeating due to the low potential take-up. As it stands, the qualifications on applying to the scheme are more complicated than the existing Gift Aid system. We have already seen from the case studies above that certain small charities find accessing Gift Aid challenging. As such, we suspect that the benefits of the proposed scheme will have, in reality, little impact on small charities. Small charities will not claim if it involves a more complicated process.

6.2. Concerning the risk of fraud, we believe that this is an important consideration. However, the FSI is not convinced that the "matching principle" provides an effective method to tackle fraud. Existing anti-fraud measures may be more effective in encouraging small charities to use the system, as well as keeping it simple. We believe that a reasonable alternative was outlined in the consultation response by the National Council for Voluntary Organisations (NCVO). NCVO highlighted that the "Tainted Donations" legislation, as well as the "Fit and Proper Persons Test" would also both be appropriate for GASDS. Moreover, we would also draw attention to the point that NCVO highlighted: The extent of the anti-fraud measures as they stand are more comparable to tax relief than to grants of public money. [4]

7. Recommendations

· In order for small charities to use the GASDS scheme the legislation should be simplified, and the application process must be accessible.

· The legislation must be open to the whole voluntary sector, and not just to those who successfully claim Gift Aid. The Gift Aid system is already complicated for small charities and it is often not possible to use it to its full potential.

· The 2:1 "matching principle" should be amended to a 5:1 ratio of GASDS – Gift Aid. As the proposed system stands, we believe that this will unfairly impact on small charities that do not have the capacity or the knowledge to maximise Gift Aid.

· The principle of having to successfully claim Gift Aid for 3 out of the previous 7 years should be reviewed, as this will impact on small charities that do not have regular Gift Aid donations.

· The suggested methods of tackling fraud may not be effective if the uptake of the GASDS is very low due to the complex nature of the proposals. Existing anti-fraud measures such as the "Tainted Donations" legislation, as well as the "Fit and Proper Persons Test" would also be appropriate for GASDS.

October 2012


[1] NCVO, “The UK Voluntary Sector Workforce Almanac 2011”, 2011.

[2] Charity Tax Group, et al, “Gift Aid Simplification Survey Results”, 2010.

[3] HM Revenue & Customs, “The Gift Aid Small Donations Scheme”, Summary of Responses (June 2012).

[4] National Council for Voluntary Organisations et al, “Consultation response: The Gift Aid Small Donations Scheme” (May 2012).

Prepared 26th October 2012