Hector Gift Aid

Do Away With Gift Aid Declarations

The Common-Sense Approach to Charity's Best-Loved Tax Relief

In the second instalment in our series of bite-sized blogs about the Charity Tax Commission’s call for evidence, we’re taking a radical swipe at Gift Aid.


Higher Rate Gift Aid Relief might be ‘worth’ £520 million to individuals according to the Charity Tax Commission but that’s a far cry from how much actually reaches them or - candidly - is passed back to the charities as a component of the original donation.


HMRC published research in March that shows only half (52%) of Higher Rate Taxpayers realise they can put their charity donations on their tax return and receive back 25p in the pound (31p if lucky enough to be an Additional Rate Taxpayer).


And worse… of those who actually know about the tax relief, less than half bother to claim it. The reasons given: one in three (32%) stated that it would take too much time and / or effort to claim tax relief on donations made. Nearly one in five (18%) cited the process for claiming tax relief as too complicated, while a similar proportion (17%) stated that by claiming tax relief, they would only receive a small amount of money back.


The upshot is that just 22% of Higher Rate Taxpayers use this form of relief  - ie claiming £114 million with the remaining £406 million each year going permanently down the back of a sofa at the Treasury. And that’s on top of the £560 million a year that HMRC says is not being claimed by charities because of the Gift Aid box not being ticked at the point of donation.


Even fewer individuals will know / bother to tell the Taxman about donations they’ve made going back 4 tax years in order to receive a cheque for the tax they’ve overpaid. So that’s £1.6 billion of free money that’s gone unclaimed.


And so, again, here we have a form of tax relief that is not being used to its full potential because of a lack of awareness and complexity-driven inertia. The fact that only half of those concerned are even aware of this 28 year old tax break points to a pretty bad level of awareness - with the blame to be shared by HMRC, the financial advice industry and, to an extent, charities themselves.


Back of the Sofa’s recommendations would be to:

Scrap Higher Rate Gift Aid relief in favour of a blanket one-size-fits-all, declaration-free Gift Aid contribution from the State (in a similar way to how the Gift Aid Small Donations Scheme works). IE Set a fixed top-up on all donations - regardless of the tax position of the donor - and completely do away with all forms of Gift Aid declarations. There is certainly plenty of research conducted into the level of charitable giving and this fixed ‘match funding’ approach could be calculated in line with Treasury budgets.


Here you can read our full response to the Charity Tax Commission’s call for evidence.

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