06 April 2020 - Article
The first full scale public meeting to discuss these ideas took place on 17 June 2014. The general purpose is to try to simplify the donor benefit rules and remove the ‘cliff edge’ effect of inadvertently breaching the limits on individual donations. This may prove to be achievable by broadening the range of benefits which are treated as not having any value, and then introducing an allowance for true benefits rather than a threshold. The allowance means that the designated level of benefits will be ignored from the point of view of Gift Aid, but anything exceeding that level will have to be netted off the Gift Aid claim figure in one way or another. This could remove the on/off nature of Gift Aid which causes headaches to fundraisers in seeking to set the right level of benefits without exceeding the threshold and losing all of the Gift Aid. It would only work on a pooled basis, that is, that the donations across the charity as a whole would be measured against the value of benefits provided across the board (not to each individual). This ‘pooling’ is intended to make the system easier to operate by removing the need to analyse each individual donation.
The meeting was an opportunity to point out issues relating to defining benefits to be ‘disregarded’ and it was noted that HMRC appeared to be retreating already from this idea, because they thought it was a possible source of complexity and dispute. There was also a debate over how to value benefits, and whether to do so on ‘cost’ of provision was particularly simple. The view was that there were significant potential complexities to a cost basis, and that in some cases open market value would have to remain the appropriate measurement, though this would lead to no overall simplification.
One commentator said that the pan-charity model would increase difficulties because each fund-raising campaign was designed in isolation to be efficient for gift aid, and the impact of having to aggregate them would create an administrative nightmare.
The smaller charity representatives commented that the suggested 5% allowance was so far below the current 25% threshold that it would represent a major tax loss for charities pursuing sub-£100 donations and thus would be very negative, despite the fact that only the excess benefit value would be ‘taxed’ instead of gift aid being lost entirely.
We mentioned that the proposals risked a fundamental and adverse shift in the meaning of a benefit being ‘in consequence’ of donations, and could create a situation where any service which was funded from gift aid donations would disqualify the gift aid claim, which was perhaps an unintended consequence that needed to be addressed at the legal drafting stage. HMRC commented that this was a good point that they would take on board.
There were many related observations in a lively exchange of views and this has started the review process off in a vigorous and engaging manner. It remains to be seen whether and how the discussions will remain on track to deliver a beneficial change both for charities and HMRC.