Environmental, social, governance (ESG) Gift Aid Tax and VAT

Some lessons from HMRC's Higher Rate Gift Aid Donors report

HMRC has published some research that it had commissioned on understanding charitable giving and Gift Aid behaviour amongst better-off individuals. Although I am not convinced that this was the best use of HMRC's budget (see below), there are some lessons that we can learn from this research - despite the small sample size.  Here are a few things to take away from HMRC's research:

We need to improve public awareness of Gift Aid

Despite the individuals being interviewed earning significant amounts and potentially claiming thousands of pounds worth of Gift Aid, it is concerning that many participants were confused about what Gift Aid was and how it operated. It has been 15 years since Gift Aid in its current form was introduced and although participants have said that charities have got better at promoting and explaining the importance of Gift Aid to them, ultimately, much bigger public awareness and education is required. Not only would this help boost the amount of donations with Gift Aid, but it would also help to reduce claims made in error. We are encouraging government to invest in a public awareness campaign in Gift Aid, as we outlined in our post-election priorities bulletin.

Tax reliefs are just as much about the message that they send

One of the clear messages from the report is that Gift Aid is important not merely because it provides tax relief to donors, but because of the message it sends out about the value of charitable donations to the public. As the report says:

"There was a strong feeling that through Gift Aid, the Government had created an expectation within society for individuals to donate..."7

It is important, therefore, that the Government sends consistent messages about tax reliefs. Caron Bradshaw, our chief executive, has written in Third Sector (£) about how charities are being caught up in the government's efforts to clamp down on tax avoidance. Last year, there was an attempt to redefine charities for tax purposes in order to clamp down on avoidance. CFG was concerned that this would send the wrong message about charitable donations and fortunately, we managed to get it overturned. We also saw the government attempt to cap charitable tax reliefs in the last Parliament. The sector needs to keep a watchful eye on charitable tax reliefs.

Public awareness of how charities work may be improving

Although the research is only a small sample size, it is interesting to note that between this research and the last time higher rate donors research had been conducted in 2007, that views about whether charities can be trusted to use resources in the best way possible has improved.

Indeed, many participants, including those who chose to focus their donations on different types of charities, said that they trusted national charities to use donations wisely and there was little concern about donations being used for administration costs. Some participants went further and argued that charities are right to spend money on areas such as staff benefits and salaries to ensure that they could recruit talented staff which would make the charity more successful. 

This is a welcome development and indicates that if charities make the case better, the public can be made to appreciate the need for charities to spend on administration and salaries. Given the negative press stories that have been produced about the sector in recent weeks, it is important that charities do not become convinced that the public is comprehensively against charity spending in these areas.

Confidence in the administration of tax reliefs is important

In the wake of the Cup Trust, it is perhaps obvious to say that confidence in the administration of tax reliefs is important for the sector. But it isn't only the impact that it has on government support for tax reliefs that is at stake. The report says that some donors believe that being able to tax relief is evidence that charities are credible and are worth support.

"Participants felt that such charities must be credible and trustworthy and this increased their confidence in making donations to them."

Charities must work with government, therefore, to root out fraud in the system, not only to keep ministers on side but also to make sure that the public do not believe that charities are less credible.

Is it worth giving higher rate donors the option to give their tax to charities?

One of the themes from the research is that many higher rate donors do not consistently claim higher rate relief, particularly those that give small amounts and cannot be bothered with the paperwork of claiming for themselves.

"...some participants said that they would be happy for the charity to receive all of the tax relief on their donations as the value would be more important to the charity than it would be for them. These participants tended to...[make] a high number of smaller value donations throughout the year, typically not totalling more than five thousand pounds and they were not consistent in claiming relief on all of these."

There have been regular suggestions that an option should be given to higher rate relief taxpayers to give all their tax relief to the charity, not just the basic rate tax. This research indicates that this is a subject that is worth investigating in more detail.


This post was last reviewed on 28 November 2018 at 16:08
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