In May 2016, the British Government announced its intention to introduce a new Bill to simplify the complex Gift Aid Small Donations Scheme (the Scheme).
The Small Charitable Donations Bill will be constructed from feedback received during a consultation process which ran from April to July 2016.
The new Bill has been welcomed by charity finance groups, who have in the past criticised the existing Scheme for being nightmarishly complex and administratively onerous.
Charlotte Ravenscroft, head of policy and public services at the National Council for Voluntary Organisations, was quoted recently saying, “The small donations scheme is a great idea that’s been sadly hampered by restrictive eligibility rules. We want to see the scheme made far more accessible to small and medium-sized charities by reducing the requirement to have claimed gift aid in several preceding years and removing the ‘matching rule’ that unfairly limits the generosity of the scheme for some charities.”
Gift aid – the basics
The Gift Aid Scheme allows registered charities and community amateur sports clubs to receive an extra 25p for every £1 donated. It works by allowing a charity to reclaim the basic rate of tax on a gift at no cost to the donor.
Charities encourage UK taxpaying donors to fill in a Gift Aid Declaration form, which provides the charity with a statement confirming that the gift-giver wants to receive tax back on the donation that he or she has made.
It is worth noting that the Gift Aid claim can only relate to gifts made by individuals, sole traders or partnerships in the following form:
- direct debit
- credit or debit card
- postal order
- standing order
- CHAPS payment
The Gift Aid Small Donations Scheme
The existing Scheme does allow charities to receive ‘top up’ payments where they receive cash donations of £20 or less, without needing to have a declaration form signed. The rule reflects the often difficult situation where small donations are made and it is difficult, if not impossible, to get the required declaration completed. With effect from 6 April 2016, the Scheme will increase the threshold for the total amount of small donations which a charity can claim top-up payments on, from £5,000 to £8,000, each year. The change will allow organisations to claim up to £2,000 in top-up funds from the government per year. Charities can also back-date claims up to three years.
To be eligible for the Scheme, a charity must:
- be a charitable trust or a charitable company, recognised by HMRC as a charity for tax purposes;
- have made claims under Gift Aid;
- have existed for at least the last two complete tax years;
- have made a successful Gift Aid claim in at least two out of the last four tax years, without a gap of two or more tax years between those Gift Aid claims or since the last claim made;
- not have incurred a penalty on a Gift Aid or Scheme claim made in the current or previous tax year
The need to reform the Scheme
The Scheme is seen as a vehicle to level the playing field between large organisations who have the manpower to manage extra administration and smaller charitable groups who rely on cash donations (often made through street collections or events held in community centres).
Critics of the Scheme argue that it is far too complex in nature. They want to see the eligibility criteria relaxed, so that the only requirement of the Scheme is that the charity be registered for Gift Aid and that the charity had made a successful Gift Aid claim in the previous tax year to be able to access the Scheme. Additionally, to qualify for the Scheme, donations must be received as cash, which means that charities cannot claim on payments made by cheque or electronically. Whilst the government has at this stage refused to extend the Scheme to include donations made by cheque, text message, etc., the new Bill will explore including donations made by contactless credit cards and debit cards as part of the Scheme.
The scheme also needs promoting to make smaller organisations aware of its existence.
How Saracens can assist charities in claiming under the Scheme
The complicated nature of the existing Scheme can be off-putting to small organisations, who do not have the administrative support needed to meet the requirements. Our charity law specialists can advise you on the criteria and best practice guidance regarding the Scheme. As an example of the best practice guidance, with regards donations made in cash, it is recommended that:
- they should be collected, counted and recorded by two unrelated individuals;
- they should be counted in a secure area and held in a secure place until it is possible to bank the donations, and that banking should take place as soon as possible;
- when counted, a record should be made of the amount received by denomination of coins and notes for reconciliation with banking details;
- donations should never be left unattended or in an unattended area;
- donations should be paid into a UK bank, or building society account held by or on behalf of the charity
We have over a decade’s worth of experience in assisting charitable organisations with legal matters. Over this time, we have established many contacts in the finance and accounting sector. We partner with these companies to assist clients who run charity organisations, offering to source a package of financial, administration and legal advice.
As with any reforming piece of legislation, it will take months for the Small Charitable Donations Bill to be passed into law. Rather than lose thousands of pounds in top-up donations whilst waiting for the Scheme to be simplified, contact us today to be advised of your options in a cost-effective, efficient manner.
Saracens Solicitors is a full-service law firm based in London’s West End. We have dedicated and highly experienced charity law solicitors who can advise on all legal matters relating to the charity sector. For more information, please call our office on 020 3588 3500.