Fundraising, Gift Aid and the higher rate taxpayer
Howard Lake | 4 February 2010 | Blogs
1. Introduction
Although hard evidence is difficult to find, there are reports by CAF and others which indicate a high awareness and participation by the public in making donations Gift Aidable – i.e. completing a Gift Aid Declaration with a donation. Figures from CAF show that the usage of Gift Aid varies from between 40% to 80%, increasing with the value of the donation (The Public Bond with Tax Efficient Giving in the UK April 2009 pg 22). And although spontaneous awareness was quite low at around 30%, prompted awareness was almost 70%.
So, it is a bit like snow ploughs in Britain – we have them, they just aren’t always in the right place at the right time and there are not always the people available who know how to use them. And to continue the analogy, whilst it may be possible to get better ploughs and train people to use them, this will take money, and more importantly, time.
So what should be done now is to review the existing situation and determine, with experts if necessary, how best to utilise the existing infrastructure and equipment as efficiently as possible. And if it is necessary to import some skilled operators from elsewhere – i.e. outsourcing for a short period of time, then this must be a more efficient way of clearing the snow or getting Gift Aid to work!
The point is that whilst it is accepted that the objective of Gift Aid is not primarily to get money for charities, from a charity’s point of view this is irrelevant. Bob Geldof summed it up perfectly when he said “Give us the f%$*#ing money”.
Charities need money to achieve their charitable goals and they need it now. There have been talks about changing Gift Aid for years and with each passing financial year another £800 million is lost to charities. So even if the existing system is not perfect, charities should be prepared to crawl through barbed wire or do whatever it takes to collect this money.
Cries of “it’s too difficult” or “we don’t know how to do it” don’t help with getting money that has already been collected and allocated to your charity from HMRC’s bank account into your account.
2. So how can this be achieved? Some possible solutions
2.1 Trade for donations in kind
Most charities will have donors on their database which they can identify by profession. So if you have anyone who has financial expertise – accountant, financial adviser, tax adviser, etc. – you have probably received a cash donation from them. Ask them if they will make a donation to your charity, as in the past, but this time you don’t want cash – you want them to ‘do your Gift Aid claim’.
Surprising as this may seem, it will not take too long, for them to assess just how much Gift Aid money there is likely to be. Based on this you will then have a pretty good idea of much potential cash is recoverable and what is likely to be needed in terms of resources to carry this out.
And as there are always volunteers and interns looking for specific projects on which they can build a charity CV this is an ideal opportunity.
2.2 Call in a specialist
Most people can change a plug on a kettle or replace a light bulb, but very few would re-wire their house. So if you don’t feel confident to manage your Gift Aid, outsource this. After all your building probably has a cleaning and maintenance contract, your plants, if you have any ,are probably watered by an ‘office horticulturalist’, and your equipment is checked and approved by a Health and Safety contractor. So subcontract your Gift Aid like you subcontract your payroll and reap the cash as it comes in.
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2.3 Do it now and retrospectively
The beauty of Gift Aid is that you have a long time to do it in. Currently this is 6 years, going down to 4 years from 1 April 2010. This means that any donations which are or could be Gift Aidable but which you have not yet processed or received a Gift Aid Declaration for can still be claimed.
There are a number of amazing success stories on this – Eric Grounds of Sue Ryder Care was able to identify over £1million. For practical reasons he was ‘only’ able to recover £600,000. And even if this cost him £599,999 – which clearly it did not – it would still have been worth it. So, as Nike Corporation has it, ‘Just Do It!’
3. The Higher Rate Taxpayer issue
One of the main issues currently being discussed is the tax relief which is available to Higher Rate Taxpayer. The research recently undertaken (Exploring Options for higher-rate relief -Scharf, K and Smith, S – December 2009) has given rise to a number of additional queries relating to the approach, findings and practicality of the recommendations.
There is also some doubt over the petition to Downing Street regarding proposals to changes for the higher rate tax payer, with HMRC saying that the Institute’s calculation was based on “an incorrect method for how Gift Aid works”.
So whilst there may be reason to suggest that this application should be investigated and possibly changed, the opportunity to raise real income from the existing structure is very real
4. The status of the higher rate tax payer
The Public Bond report (The Public Bond with Tax Efficient Giving in the UK, April 2009 p8) indicates that only 50% of these tax payers were aware that they could claim this tax relief for themselves and only one third of these, around 16% had actually done so. So this means that some 84% of all higher rate tax payers had not claimed this tax relief in the past.
What also needs to be appreciated is the fact that the Self Assessment Giving, which is the mechanism the higher rate tax payers can use to pay their tax relief to charity, can be used
4.1
By higher rate tax payer to pay all their relief from all their donations to all charities to your charity.
4.2
By all tax payers to pay some or all of their tax relief from what ever source, not just Gift Aid, recovery to charity.
5. So how can charities take advantage of this now ? Some possible solutions
5.1 Make sure you have a friendly accountant as your supporter.
There seems to be evidence that many people, especially higher rate tax payers simply give their personal tax affairs to their accountant and trust them to do what’s best. The HMRC CAF report (Exploring Options for higher-rate relief – Scharf, K and Smith, S – December 2009 p72) notes: “I think you can get the [rebate] on the tax form – my accountant did that one year without letting me know, actually.”
So instead of trying to find out who are your higher rate tax payers, writing to them to persuade them to donate their tax relief, simply educate your supporters who are accountants and tax consultants to doing this. In this way they will be able to raise funds for you without trying to sell their clients raffle tickets or asking them to sponsor them on bike rides or even direct donations, and you will get another supporter who is now also a fundraiser, and get more Gift Aided money for your charity
5.2 Make use of the ‘double dip’ – legally.
Although not quite a double dip, this is quite a sneaky way of using the Gift Aid relief from another charity for your own charity’s benefit. The tax relief from donations made by a Higher Rate Taxpayer comes from all his donations. But the Self Assessment Giving form only has space for this relief to be donated to one charity.
So if your charity’s number gets there first, you will get all the donor’s Gift Aid relief, despite the fact that he may have only made a small donation to your charity originally.
5.3 Tax doesn’t have to be taxing, and similarly Higher Rate Taxpayer relief doesn’t have to come from Higher Rate Taxpayers
A closer look at the Self Assessment Giving form shows that this form is used for donating tax relief. It does not say anything about where this relief comes from, or that the donor has to be a Higher Rate Taxpayer. All that HMRC are doing is giving tax payers another opportunity to donate to charity and to use Gift Aid. Whilst it is possibly aimed at Higher Rate Taxpayers who have made Gift Aid donations, it is not restricted to them.
Again, the tax advisor should be made aware of this and the form completed accordingly.
5.4 The power of repetition
Much has been said about the fact that in the last Budget nothing was done for Gift Aid. But in fact the new 50% tax rate means that if tax relief is donated repeatedly for three years, the amount received by the end of the period would have doubled. This is because the donation of the tax relief is in itself a Gift Aidable donation which then repeats the cycle.
5.5 The Gift Aid Declaration and registration for Self Assessment Giving.
Of course none of this works without the correct paperwork and registration. So make sure that all donations, especially from Higher Rate Taxpayer are done under Gift Aid .And also make sure that your charity is registered for Self Assessment Giving. This may seem obvious, but this is a separate registration number and needs to be done with HMRC (see their website for details.)
6. Conclusion
Gift Aid is generally accepted as one of the most generous tax incentive and relief schemes available. Sure it is cumbersome, difficult, administratively heavy, and all the other things it has been accused of. But nothing that is worthwhile is ever easy. And at the end of the day it is free money.
So whilst there may be a case for making changes and revising the scheme at the same time one should not lose sight of the fact that this is free money for your charity which, as easily as the scheme was introduced, it could just as easily be withdrawn.
Barry Gower
Managing Director
GAIN (Gift Aid Recovery Consultants), 51 Love Lane, Pinner, Middlesex, HA5 3EY
tel: 0208 868 1307 Mobile: 07910 391653
e-mail: **@ga**.uk www.gain.me.uk
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.