Although the recent Budget had no pre-Christmas goodies for the charity sector, the announcement that the Gift Aid donor benefit rules are to be simplified did arouse interest.
The plan to restructure the rules was originally unveiled in the 2014 Autumn Statement, since which time the Government has undertaken two consultations. It has just published its response to the second consultation – it is there that we find details of what the changes are likely to be.
The current rules
Many charities – for instance, in the context of membership schemes – provide supporters with services and goods in return for their donations. However, in order for charities to claim Gift Aid on the donations, the value of those "benefits" must not exceed prescribed limits. At the moment, there are three thresholds:
- For donations under £100, donors may receive up to 25% of the value of their donation;
- For donations between £100 and £1,000, they may receive up to £25;
- For donations over £1,000, they may receive up to 5% of the value of their donation, subject to a maximum of £2,500.
Certain heritage charities may apply an "admissions disregard". If an individual pays an additional 10% on the entry price or the charity provides access to the property for a full year, the charity may claim Gift Aid on the full amount paid.
Following consultation, the Government plans to reduce the number of thresholds to two. The first threshold will remain the same: for donations under £100, charities will be allowed to provide benefits worth up to 25% of the value of the donation. For donations above £100, the donor will be able to receive a benefit of £25 plus up to 5% of the amount donated above £100, subject – as now – to a maximum benefit value of £2,500. Annex D of the consultation response paper includes worked examples, showing the maximum benefits for donations of various amounts under the current scheme and the proposed new scheme.
There are no plans to amend the "admissions disregard".
In addition to simplifying the donor benefit rules, the Chancellor also announced that certain other tax concessions – currently available to charities on a non-statutory basis – are to be made law. These are:
- "The split payment rule": if a charity can establish the market value of a benefit and that benefit is one which is also sold separately to the public, the charity can deduct the value of the benefit from the total amount given by a supporter and claim Gift Aid on the rest, regardless of the benefit thresholds;
- "The averaging method": a charity can average the cost of a benefit over a number of individual donors (for example the average cost per person of a charity dinner);
- "The 10-year rule for a 'lifetime' benefit": a lifetime benefit can be valued for its first ten years and be deemed to have no benefit after that, so that it no longer needs to be brought within the donor benefit calculation;
- "Literature is deemed to be of inconsequential value": benefits consisting of literature (for example the charity's magazine) are not included when calculating the value of donor benefits.
Examples of how these operate in practice are set out in Annex B of the response to the consultation.
The plan is for legislation to be in the 2018-19 Finance Bill, with the changes coming into effect from 6 April 2019. However, the Government intends to consult on draft legislation and guidance in 2018, so there will be an opportunity to comment on the fine print before anything goes before Parliament.
If you require further information on anything covered in this briefing please contact Charlotte Black, Rachel Holmes or your usual contact at the firm on 020 3375 7000.
This publication is a general summary. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2017