Louise Richards finds that while Gift Aid is a great boost for the third sector, certain processes must be made more user friendly for it to achieve its potential

All fundraisers ought to be aware of the benefits of Gift Aid. Simply put, it enables charities and community amateur sports clubs to claim back the basic rate tax already paid on donations by the donor and is currently worth 25p for every pound donated by UK taxpayers. We’ve seen a suite of changes made to Gift Aid through the most recent Budget announcements. What implications will these have for our work? Are further reforms needed to make Gift Aid even more effective?

As announced in the Budget, 2013 will see the introduction of a modernised online filing system for Gift Aid. This is a development that will have a big impact on tax relief, saving charities time and money when processing donations. The government has already taken the first step towards this goal by introducing intelligent forms. These new forms are available from HMRC’s website, and will help charities reduce common mistakes when reclaiming Gift Aid.

Further reform

As of 2013, charities will also be able to claim new Gift Aid on up to £5,000 of small donations per year. In this reform, we can see evidence of our ‘Gift Aid light’ idea, which was put forward to the government’s Gift Aid forum last year. Clearly, the sector’s joint working has influenced government policy. The benefit limit on Gift Aid has also increased from £500 to £2,500, which is good news for the sector and could enable charities to manage more effective stewardship of substantial donors.

Transitional relief on Gift Aided donations has now ended, although charities have been given two years to make a claim on donations made last month. Transitional relief was introduced as a means of ensuring charities were not immediately adversely affected following the two pence drop in the basic rate of tax, announced in the 2008 Budget. The recent rise in VAT, to the tune of £140m a year, is also a short-term shortfall for many charities.

There is some debate as to whether the new ‘fit and proper person’ rules introduced in the Budget could make claiming Gift Aid more difficult, resulting in more red tape and a potential lack of clarity around whether or not a charity qualifies for tax breaks. This rule centres around the person who is nominated to submit tax returns for Gift Aid claimed on behalf of a charity.

On the whole, the Budget changes have benefited many charities and not-for-profit organisations across the sector. Furthermore, HMRC has publicly committed itself to work on rewording its Gift Aid guidance, making it more user friendly for charities. However, there is still work to be done in further simplifying Gift Aid, making it easier for charities to grow a giving culture in the UK. This would make the process of raising funds for charities more democratic, with greater numbers able to benefit. The Institute will always champion practical ways to make it easier for charities to ‘make the ask’, with Gift Aid remaining a candidate for further reform.

Louise Richards is director of policy and campaigns at the Institute of Fundraising.

This article first appeared in The Fundraiser, Issue 5, May 2011