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1 December 2015, 09:10

Guest blog: Gift Aid – more change on the horizon

With today's #givingtuesday in mind, this new guest blog from Helen Elliott, partner at Sayer Vincent, outlines what charities should be doing with regard to the new Gift Aid Declaration. 

 After some months of discussions, HMRC has agreed to change the health warning on the Gift Aid declaration charities need to use from 6 April 2016. The declaration has been shortened, removing the references to Council Tax and VAT. However, wording has also been added making it clearer that if a donor has paid insufficient tax to cover their donations, then they are responsible for paying the difference. Some commentators have suggested that this phrase will put donors off from signing up to Gift Aid.

In fact, HMRC commissioned behavioural scientists to study donor behaviour as part of their review of Gift Aid. This suggested that the majority of donors were confused by all the Gift Aid paperwork anyway and a significant proportion thought that it would cost them money. So whatever the wording on the declaration is, charities have to work harder at explaining Gift Aid and encouraging take up.

This could be tough in coming years as the increase in personal allowances already announced by the Chancellor means that fewer people will be paying tax. HMRC has already expressed concern that it might be paying Gift Aid to charities where no tax has been paid by the individual. In their November 2013 report into Gift Aid and reliefs on donations, the National Audit Office estimated that £55 million might be paid in error in refunds to charities where the tax had not been paid by the individual donor. HMRC is keen to close the gap and has just updated its retail Gift Aid guidance. The guidance now contains a greater emphasis on staff training and internal checks on procedures, rules out having staff incentive schemes for Gift Aid and requires shops to have a notice in the window explaining that some items are sold as agent for others.

So what should charities be doing?

• Firstly, charities need to update their Gift Aid declarations to follow the HMRC requirements. You may use up old stocks of printed declarations but must start using the new ones from 6 April 2016. There is no requirement to replace old declarations which remain valid.
• It might be an idea to test your systems. When HMRC conducts an audit, they take a Gift Aid claim and check back to the charity’s records of receipts and the declaration. Select a sample of 100 entries on a claim and ensure that you can perform this audit test. You are permitted an error rate of 4% by value as long as it is less than £500.
• Consider ways to store declarations safely and in a form that allows them to be retrieved easily. You can outsource scanning of documents and as long as they are referenced properly this can be an efficient way to store them.
• It is wise to segment your donations so that Gift Aid claims are made for each type of donation. For example, you might treat major donors separately from the London Marathon runners. This can be helpful in terms of audit tests as an error rate can then be ‘ringfenced’ to the particular type of donations. You need to flag this approach in advance to HMRC when they announce an audit visit, and provide them with information about your methodology.
• Think about using verbal declarations. These can be used in face to face situations, such as charity shops and events. Charities assume that they must get a signed declaration, but it may be easier to ask for a verbal declaration, collect an address and email, and then send the donor a written confirmation.
• Review the new Retail Gift Aid guidance, amend your procedures and undertake staff training to ensure you are following it.

It seems likely that the level of Gift Aid payable to charities will plateau over the next few years as more people drop out of paying tax. If this is HMRC’s expectation, then they will be selecting charities with high and increasing levels of Gift Aid claims for inspection. So make sure your processes and systems are compliant – at least within the error rate. - Helen Eliott can be contacted by email should you need further information on any of the points raised above.

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