With Gift Aid, ticking a box on a form, or giving a simple verbal “Yes” can enable a donation to be increased by 25%. Also, when the donation is made by a Higher Rate Tax Payer, HM Revenue & Customs (HMRC) will give higher rate tax relief on the donation to the donor. This can be claimed either on their Self Assessment tax return, or by an adjustment to their tax code. So despite these benefits why is Gift Aid only being paid on around 40% of qualifying donations and what can be done to improve this?
Donors are concerned Gift Aid will be used by HMRC as a way of looking into their tax affairs, and charities are concerned about draconian fines by HMRC if they claim Gift Aid incorrectly. These fears are unfounded on both accounts:
- In reality, Gift Aid payments are usually a very small element of a donor’s tax return. HMRC usually have other reasons for carrying out a tax investigation into a donor.
- HMRC understand that charities are often run by volunteers who may not have much formal accountancy training or administrative experience. They are often people who are motivated by their passion for the charity’s work rather than on mundane but nevertheless important charity administration. Provided there is no evidence of deliberate fraud, HMRC will be more likely to adopt a less stringent and even compassionate view if they discover mistakes.
So how to get Money without Fear?
- Compliant Gift Aid Declarations
The Gift Aid Declaration is vital to getting Gift Aid. A charity must be able to provide a valid Gift Aid Declaration to support every single donation in a Gift Aid claim. Whilst this might sound like a very onerous obligation, the Gift Aid regulations provide a number of mechanisms both for correcting non complaint Gift Aid Declarations and for providing a replacement Gift Aid Declaration if one cannot be found. These mechanisms provide a ‘safety net’ in the event that a Gift Aid claim has been made and it is then discovered that certain Gift Aid Declarations are missing or are not compliant.
- Increasing the time span for claiming Gift Aid
The Gift Aid regulations often refer to “the last 4 years”. However, the reality is that the time scale is “4 years from the end of the financial year in which the donation was made”. As an example, consider a charity with a financial year end of 31 December. A donation made on 1 January 2014 could still be subject to Gift Aid provided the Gift Aid was claimed by 31 December 2018, almost a full 5 years after the donation was made!
This means that you can sweep back through all your donations for up to 5 years, an increase in time of up to 25%!
- Getting more from existing donors
Inevitably there will be donations which do not have a supporting Gift Aid Declaration. There should be no harm in writing to the donors and asking them to make a Gift Aid Declaration. However experience suggests that there will be a low response. An alternative approach that is acceptable to HMRC is to seek an oral Gift Aid Declaration over the telephone. This should be followed up by a letter or e mail to the donor to confirm the details of the declaration.
It is estimated that around £800 million per year is lost in unclaimed Gift Aid. Bearing in mind that this can be back claimed for at least 4 years, this means that some £3.2 Billion is being lost to charities. Given that we suggest you assess how much extra Gift Aid your charity could claim if it was claimed on all your eligible donations, along with what it would cost to administer this. It is likely you will have much to gain.
We can help you in this process; identify how much extra Gift Aid you could claim and help you implement the systems and processes needed to correctly claim it. If you would like help with this or indeed just an informal discussion please contact Bill Lewis or Barry Gower.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 13, 2017.