Gift Aid Tax and VAT

Research questions to get our teeth into on Gift Aid

The National Audit Office has released a report on HMRC, Gift Aid and other tax reliefs on donations.  Overall it estimates the cost to the exchequer of these tax reliefs ...

The National Audit Office has released a report on HMRC, Gift Aid and other tax reliefs on donations.  Overall it estimates the cost to the exchequer of these tax reliefs to be around £2bn, around half of which goes to charities.  One of the main findings the NAO has stressed is that there is not enough data to ascertain a causal link between Gift Aid and changes in giving behaviour.  Subsequently there is little to determine the value for money of the scheme.  Despite this, most in the sector would argue the success of the Gift Aid brand and the importance of it as a source of income.  So what does the report reveal about the gaps in our understanding on Gift Aid and what might be some interesting research questions for the future?

The high-level figures

In 2012-13 charities received around £1bn in Gift Aid, representing around £5bn in grossed-up donations to the sector.  The NAO has pointed out that in real terms adjusted for inflation, this is in fact very similar to the amount received in tax reliefs on donations in 1999-2000; the amount that the donors have claimed back has however gone up from £130m to £940m, a mixture of relief paid to individuals and companies. 

Company giving through the Gift Aid scheme

Before 2000 charities re-claimed the corporation tax on donations from companies.  This was worth £971m over ten years and would have been part of the overall tax relief figure for that time, referred to above.  The NAO figures only look at the portion paid to the donor, and therefore expenditure by HMRC; they do not consider the additional grossed up amount gifted to the charity.  The fact that the £1bn in expenditure for 2012/13 does not include corporate Gift Aid means that it is made wholly of individual donations, and the separate corporate relief represents further charitable donations on top of this.     As the NAO points out, this indicates an increase in corporate giving. 

The NCVO Almanac estimates that private sector donations stood at £842m in 2010/11, but according to the same data this has not increased in real terms since 2000.  So, is this relief incentivising giving to charity or not?  Possibly not, but given the range of other factors influencing private companies at the moment, it surely can’t hurt!   Corporate tax relief on donations is estimated at £400m, representing a (very) rough estimate of around £1.7bn in donations to charities.  A portion of this can be accounted for by charity trading subsidiaries, which donate their profits and the Gift Aid back to the charity, so the actual figure for private sector donations will be lower.  CFG is aware that there is a research gap when it comes to charity trading activity; HMRC data doesn’t tell us what proportion of the £400m could be attributed to this, leaving a clear space for further investigation.

The importance of ‘high rate relief’

High rate relief was estimated at £470m last year and therefore could represent (getting the calculator out) anything between £1.5 and £2.5bn in overall donations and basic rate Gift Aid from high rate tax-payers – that’s a significant proportion of the overall value of donations made through the Gift Aid scheme.   

Coutts research into donations over £1m has tracked an increase in these from individuals over time, this is particularly apparent in the university and arts sectors.  Sector discourse on reform of Gift Aid has been dominated by some disparity between those that benefit mainly from the basic rate, and those that attract larger donations and therefore find the high-rate relief an essential element.  Overall, you only have to look at the number of organisations opposing the cap on tax relief relating to donations which was announced in the Budget 2012 to see how significant this relief is to the sector.  The main message of the ‘give it back George’ campaign rested on the potential impact on large donations should the relief be capped.    

So bearing this in mind, why have we not seen a dramatic increase in the value of donations over the past decade in real terms?  The impact of the recession and the long term changes to the economy are perhaps being overlooked here.  Giving patterns are being affected as individuals adapt to a changing environment; our attitudes towards money and how we choose to give may also be changing.  With take home pay not keeping up with inflation it is unsurprising that neither has giving.  An increase in the use of regular giving methods increases the longevity of relationships with charities, but may also make it less likely that individuals will change the amounts given over time. This is all speculation, but it is only with a fuller understanding of some of these areas can we start to assess the true value for money of the scheme.  Just some of the questions I would like researchers to try to get to grips with include:     

  1. What is the public attitude towards Gift Aid and how does it affect giving on an individual basis?
  2. What is the profile of charities that currently avail of Gift Aid by size, type and location compared with the sector as a whole?
  3. What has been the impact of the recession on different types of giving?  Has this changed attitudes towards tax reliefs on giving?
  4. What is the scale of charity trading through subsidiaries and how much does charity trading contribute to corporate relief figures?
  5. What are the long term trends in corporate giving and what are corporate attitudes towards the tax relief offered?
  6. Do we see more of an affect from high rate relief or corporate relief among different portions of the sector?
This post was last reviewed on 6 August 2018 at 16:34
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