Governance, legal and compliance Gift Aid Tax and VAT

NAO report on Gift Aid: Evidence of a lack of evidence

Today the first of three long awaited reports into charity regulation and tax reliefs was issued by the NAO. 

This particular report, called for by the Public Accounts Committee under Margaret Hodge MP in light of the Cup Trust affair earlier this year, looks at the value for money of Gift Aid reliefs to the tax payer. Overall the report states that there is insufficient evidence to conclude value for money but makes it clear that this statement relates to current form and implementation. CFG’s initial thoughts are as follows:

  • Data, evaluation and policy focus: We are pleased that the NAO report highlights some of the shortcomings in data and evidence relating to Gift Aid, its uptake and the effect on giving. From the sector’s perspective Gift Aid is extremely important and we know that it makes giving more affordable. However, we have concerns that there is not a good enough understanding of how many more charities and individuals might be able to take advantage of the scheme, and how HMRC assesses success of the scheme against this backdrop. The fact that the effectiveness of the changes made in 2000 cannot be proven is an example of the lack of clear policy aims and subsequent evaluation. Gift Aid claimed appears to increase year on year but there has not actually been a real terms increase in charitable tax relief paid out to charities since the policy changes at the end of the 90s. We also know that the number of registered charities in the UK is far in excess of the numbers registered with HMRC. HMRC need to consider Gift Aid within the context of the wider charity market, not only those already registered with them and should consider ways to market the Gift Aid scheme further to increase uptake. We covered these points in our recent submission on Gift Aid and Digital Giving where we called for radical overhauls of how Gift Aid is administered.
  • Levels of and focus on Gift Aid fraud: We have always stressed that we view Gift Aid fraud as fraud against the sector; it undermines the use and principle of these important tax reliefs on income used for charitable purposes. This report gives the best indication yet regarding the scale of fraud and genuine avoidance, and therefore the scope and detail of HMRC concerns. The £170m figure is concerning but the NAO has stressed that the avoidance and fraud identified is not related to genuine donations made to charities, but to use of structures deliberately set up to take advantage of tax loopholes. The NAO reports that £110m was specifically attached to avoidance schemes, using complex arrangements such as those we saw in the Cup Trust case, and £15m to criminal fraud. A further £45m is due to error. It’s essential for us to understand and improve this evidence to ensure that measures taken are targeted at these abusive schemes. Our concern is that additional hurdles put in Gift Aim claiming processes to dis-incentivise abuse disproportionately affect take up and value for money for smaller charities in particular. This was a point we raised in relation to the Gift Aid Small Donations Scheme as it went through parliament last year. We want to target this abuse rather than placing limits on the ability for the sector to achieve value for money from Gift Aid by dis-incentivising donors and philanthropists from using it.
  • The recovery rate HMRC has of £44 to every £1 spent on compliance work is an important figure and appears to be good value for money. It would be interesting to know how this compares to recovery rates for other compliance work elsewhere in HMRC especially as it looks as though HMRC intend on increasing resource here. Equally we need a better idea of how the figures relating to levels of abuse compare; for example, 2% of open cases on abuse of tax reliefs relate to charity reliefs, is this higher or lower than expected? Relatively speaking, is more resource put in to compliance comparable to other areas of HMRC? How does HMRC approach the other 98%? We feel increased scrutiny or better compliance systems from HMRC could be positive for the sector if this resulted in better, simpler scheme design (something which has not always happened in the past). For example, Charities Online should help to reduce the error rate further by identifying mistakes early on – could we therefore simplify the declaration, attract more donors to use Gift Aid and improve value for money for the sector? These are all questions around implementation of the scheme which would be easier to assess against clearer policy aims.

These are early thoughts, and we will digest and assess further. The report ironically provided evidence of a lack of evidence, and will hopefully result in a more informed Gift Aid policy making in the future.

This post was last reviewed on 6 August 2018 at 16:32
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