Gift Aid

Will new Gift Aid Donor Benefit rules make it simpler for small charities?

In the midst of all the noise around the Budget, a significant change to the Gift Aid rules has been proposed. The proposal appears straight forward on the face of it with the three threshold limits for what can be given as a “thank you” to donors being cut down to two. The current limit of a thank you being worth only 25% of the total value of the donation for the first £100 will remain. But for donations over £100 – charities will be able to give 5% for the part of the donation that exceeds £100. This is in addition to the 25% for the part of the donation that was under £100.

Is the new system really simpler?

I’ve had the pleasure over my time at CFG to give many training sessions on Gift Aid to charities both large and small. I am not convinced that this system is going to be simpler for most charities in the long run, as it is going to potentially require them to use two thresholds simultaneously, rather than one at a time (which is a lot easier to explain and remember). If you have software that can help with the calculation,  or a lot of experience in fundraising, then I think that this will be helpful as it will avoid the cliff-edge that the current system brings into effect. However, for the smaller charities, getting their heads around this new system is going to require a great deal of communication and it is going to lead to an increase in error as people either forget that the 5% only applies to part of the donation, rather than the whole thing. CFG will work closely with the government to ensure that there is effective communications behind this. Fortunately, we have till February 2019 for charities to upgrade their software and educate their staff.

Avoiding the bigger issues

As the average donation amount is £45 the changes in thresholds are not going to help the vast majority of donations although charities will have to learn the new thresholds, which will cost time to teach staff and volunteers to understand. We’ll have to wait and see what the full consultation response on the 1st December 2017 says about the other proposals put forward, but I am not alone in being disappointed that the government has referenced other proposals such as introducing a low value disregard list for “thank yous” which would not count towards donor benefit limits. When we surveyed charities, 78% said that this would be useful as a way to make administration easier and to avoid using complex thresholds altogether. A simple list that HMRC could verify would free up a lot of time, particularly for small charities that don't want to waste time calculating what the value of thank yous are. This bring us onto the biggest issue that charities encounter around donor benefits which is the so called “value test” where charities have to value benefits by what they are worth to the donor, rather than what they cost the charity to purchase. This can be very confusing when you are dealing with items such as “behind the scenes access” to a play being put on by a local theatre company or a free piece of artwork from a service user of the charity, which is not commercially sold. Changing the thresholds without addressing the types of benefits that could be provided or  is not likely to make the whole system easier for small charities.

Do we need the rules at all?

The more and more that I have thought about these rules, the more I have questioned whether there is a need for the rules at all. The rules are already quite clear that if you give a donation in return for a good or service, then that isn’t permitted. 3.4.5 states: “Payments to a charity in return for services, rights or goods aren’t gifts to charity” So if people are giving money just to get something in return, then this shouldn’t be counted as a Gift Aid donation at all. However, a lot of the rules appear to be HMRC legislating for fundraising which it doesn’t have a clear understanding of and which doesn’t fit neatly into little boxes. In the Donor Benefits consultation it was pretty clear that there are hundreds of different business models and approaches to fundraising, no set of rules are going to be able to keep up with that. And why should it? There needs to be more trust in the way that Gift Aid is administered. Ultimately, if charities are stupid enough to give a £15 “thank you” for a £20 donation, they are going to be out of business pretty quickly. If it helps to build up their fundraising base over time and create loyal donors, then who cares? Moreover, at the moment there is a lot more error created because charities don’t properly understand the rules and because there is a lot of grey areas in terms of implementation. What would be really bold is if the government looked at this whole element of regulation and made a case for why it is needed, what is it trying to stop from happening and are the current rules the most effective way of achieving that? This might lead to more radical proposals that really would simplify the system for charities.

New rules in practice

What will the new rules mean on donations in practice, here are some examples of how the new benefit thresholds will work:

Size of donation (£) Existing relevant value test  – size of donation determines level of benefit (£) Planned relevant value test from April 2019(£)
70 17.50 17.50
100 25 25
400 25 40 (25% of 100 (25) plus 5% of 400-100(15))
1,000 25 70 (25% of 100 (25) plus 5% of 1,000-100(45))
1,500 75 95 (25% of 100 (25) plus 5% of 1,500-100 (70))
This post was last reviewed on 27 February 2019 at 16:45
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