Treasury delivers Gift Aid blow to charities

By added on 09/02/2010

Far-reaching reform of tax incentives for giving has been abandoned by the Treasury, to the dismay of cash-strapped charities desperate to encourage individuals to increase donations.

The Financial Times is reporting that many charities have clamoured for change to the Gift Aid tax relief system because of its low take-up, bureaucracy and complexity.

The decision not to press ahead with changes emerged at a meeting last week between charities and the Treasury. It followed two years of discussions over options that included removing income tax relief for donors who were higher-rate taxpayers and replacing it with an increase in the tax relief to be claimed directly by charities.

The Treasury was deterred from making changes by its reluctance to impose any extra burden on the exchequer, coupled with a fear of creating winners and losers within the charity sector.

"Rushing into major reforms of Gift Aid risks damaging what is widely seen as a very successful system," the Treasury said. It plans to continue regular meetings with the sector in a new forum, which met for the first time yesterday.

Representatives of charities expressed frustration and disappointment at the stalled reforms. Louise Richards, director of policy and campaigns at the Institute of Fundraising, a professional body, said change had "been put on the back burner at a time when society is putting ever more pressure on our sector".

Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said the reforms had been "kicked into the long grass".

John Low, chief executive of the Charities Aid Foundation, expressed disappointment but called for continued discussion of measures to improve the administration of an existing system that was "clunky, expensive and open to abuse".

Charities believe they are missing out on an important source of funding, as higher rate taxpayers fail to claim an estimated £250m of tax relief - the difference between basic and higher rate tax - or to redirect it to the charities.

One option considered by the Treasury was the introduction of a "composite rate" that would allow charities to claim the same refund for higher rate and basic rate donors.

Research published in December by the Treasury illustrated the difficulties it faced in improving the effectiveness of Gift Aid.

A survey found that a "small but sizeable minority" of taxpayers - about 14 per cent - preferred a system where they could personally claim tax relief on their donations, possibly because they did not trust the government to give the money to charities. Charitable contributions were sometimes triggered by tax planning at the end of the financial year, and "beating the exchequer" was a big incentive for some donors. But for others, giving tax relief might reduce the "warm glow" they got from giving because it was associated with greed.