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Fundraisers Call For Reform Of UK Gift Aid Rules

by Robert Lee, Tax-News.com, London

19 August 2009


A fundraising body has presented detailed proposals to the UK Treasury on reforming the Gift Aid scheme for higher rate taxpayers.

The Institute of Fundraising is lobbying the government to introduce modifications to the existing system which would allow higher rate taxpayers to donate the full amount of tax relief which they are eligible to reclaim back to charities, which it wants to see included in the autumn pre-budget review, with a view to implementation in 2010.

The Gift Aid scheme is for gifts of money by UK taxpayers. Under the scheme, charities can reclaim basic rate tax (20%) from HM Revenue and Customs on the donation’s "gross" equivalent – the amount before basic rate tax was deducted. This means that GBP10 donated using Gift Aid is worth GBP12.50 to the charity.

Higher rate taxpayers can claim the difference between the higher rate of tax (40%) and the basic rate of tax on the gross value of the charitable donation. Therefore a donation of GBP100 would result in the charity receiving GBP125, allowing the taxpayer to claim back 20% of GBP25 on their self-assessment return. However, according to the Institute, while most higher rate taxpayers believe they can reclaim the difference between the basic and higher rates of tax for themselves, in practice the government keeps 40% of this sum for itself.

“As even this can only be reclaimed by the minority of donors who complete a self-assessment form, very few people claim back higher rate tax relief on anything but the largest donations,” the Institute said. “Allowing the charity to reclaim the full amount of tax paid by the donor is a straightforward way to allow a gift to be given fully tax-effectively and has the potential to inspire more people to give and so substantially increase the amount of money charities receive through the Gift Aid mechanism.”

If the Institute’s proposals are accepted, a donation of GBP1,000 would attract a full GBP666 in Gift Aid, and so be worth GBP1,666 to the charity.

The Institute says that the Gift Aid scheme accounts for approximately 90% of all tax-effective giving and recent figures suggest that over GBP947m per annum is given back to UK charities through Gift Aid and transitional relief.

“We believe that with this simple change to the Gift Aid mechanism, everyone wins,” commented Louise Richards, Director of Policy and Campaigns at the Institute. “We are not calling for a radically new system, but for changes to the existing system which would remove obstacles to the take up of the existing concession.”

“At the same time, the substantial increase in income resulting from the change will mean that charities are much better placed to survive the recession and continue to deliver essential services in health, education and other areas,” she concluded.

The Institute is also working with other sector organizations including the National Council of Voluntary Organizations, the Association of Chief Executives of Voluntary Organizations, the Charity Finance Directors Group, the Charity Tax Group, and the Charities Aid Foundation, to press for the further simplification of Gift Aid through the introduction of an "opt out" rather than an "opt in" system.

Last year, Jasmine Whitbread, head of Save the Children, claimed that the government could give the charitable sector a GBP500m cash boost by exempting charities from value-added tax.

Under current rules, UK-registered charities aren’t automatically exempt from paying VAT, and if a charity's turnover from business supplies is above the VAT registration threshold (currently GBP67,000) it must register for VAT in the same way as any other business.

There are only a limited number of VAT reliefs on purchases available to charities, including those not registered for VAT. These include, amongst other things, advertising, building and construction, drugs and chemicals, energy-saving materials, medical and scientific equipment, and rescue equipment. Charities can also receive supplies of fuel and power at the reduced rate of VAT where it is supplied for non-business activities, and, in certain circumstances, they claim relief from VAT on specific goods imported from outside the European Community.

However, given that tax receipts are collapsing and the government's borrowing requirements are escalating by the day, Chancellor Alistair Darling is unlikely to be so charitable with the Treasury’s increasingly sparse coffers come budget time.


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