Gift Aid has delivered millions of pounds to charities over the past ten years, but is the scheme meeting its full potential? Mike Wade thinks it’s time for reform

Are you confused by the range of options for Gift Aid reform? If so, you’re not alone. Until there is a clear consensus on how to proceed, millions of pounds will continue to go unclaimed.

Ever since the launch of new Gift Aid back in 2000, there has been a struggle between charities trying to maximise the scheme’s potential and government ministers worrying about fraud or that it might be costing too much.

Now, however, if the government is serious about its Big Society, it is time to enable donors to invest in it without being taxed unfairly for doing so. Here are my top three tips for reform:

1. Make the small mighty

The big guys have long used Gift Aid successfully, but the fear of forms and audits has stopped many small, volunteer-run charities from claiming the tax they are owed.

The Small Donations Scheme could change all that. From 2013, all charities will be able to claim up to £5,000 a year on donations under £10 without needing Gift Aid declarations. The Treasury estimates that 100,000 charities, from Tottenham to Tobermory, could benefit to the tune of £240m.

Yet, rather than allowing all registered charities to benefit, a new hurdle is being proposed. Only charities who have operated Gift Aid satisfactorily for three years will qualify, excluding the very organisations that stand to benefit most.

So, proposal number one: Cut the red tape for the little guys Mr Osborne, and allow charities working at the very grass roots of society to thrive. We’ll all thank you for it in the end.

2. Double your money

Mention higher-rate tax and many a seasoned Gift Aid lobbyist’s heart will sink. We’ve been round the houses on this one, many times, without yet achieving a conclusion. And, sadly, some charities are our own worst enemy.

The principle is clear: give £500 and we’ll make it £1,000. Or £500k and we’ll make it a cool million. It’s the perfect proposition for savvy donors wanting to change the world, and hard-nosed investors alike. Ok, that’s for donors paying the 50 per cent rate, but for teachers, doctors, even fundraisers who pay tax at 40 per cent, turning £500 into £833 isn’t to be sniffed at.

However some charities, who do well out of the very rich, claim that donors being able to claim tax back for themselves is a significant motivator to giving. Such charities often have the ear of government, creating a stand-off which has paralyzed reform for 11 years.

Yet many, if not most, donors paying tax at 40 per cent don’t fill out a tax return. Therefore they don’t have an easy option to reclaim the tax themselves. They give £500 and £625 goes to change the world, which should be £833. The government keeps the rest. Multiply that by the millions of loyal donors who give hard-earned direct debits month in, month out, and it’s clear that we are all being short changed.

By trying to keep everyone happy we have held back from pushing what works. Which leads me to proposal number two: allow charities to reclaim the tax paid by higher-rate taxpayers. No one would be worse off and lots of charities would be winners.

3. Corporate relief

Until 2000, corporate giving worked in the same way as giving by individuals. The company gave money to the charity, the charity reclaimed the tax, and everyone was happy – not least the employees, who knew additional social impact would be funded by the Gift Aid top-up.

As an experiment, a change was made to allow companies to reclaim the tax instead of the charity, in theory making their giving cheaper. So much for the theory. In practice giving declined, as few companies look beyond the headline value of the gift, and even fewer ever get around to reclaiming the relatively small amount of tax back into corporate coffers.

It’s a quick and simple change which could even reverse the decline in corporate giving, as companies can see their money going further. Proposal number three: put things back as they were, and direct the corporate Gift Aid to the charity, not back to the company.

Do you agree with my top three? Would you rather the Treasury calculated Gift Aid based on income from donations, using average figures on taxpayer status? Or that tax from all donations was reclaimed at an average somewhere between standard and higher-rate tax? Or even a total opt out rather than opt in for Gift Aid?

Mike Wade is director of fundraising and communications at the National Deaf Children’s Society. 

This article first appeared in The Fundraiser, Issue 10, October 2011