Fundamentally, Gift Aid is a tax relief on charitable donations, but it has long been possible for charities to provide some benefits to donors in connection with their donations and still claim Gift Aid, for instance as part of a charity membership scheme. There are, however, limits to the benefits that can be provided and, if the benefits do not fall within the prescribed limits, the charity will be unable to claim Gift Aid on the associated donation. The rules on donor benefits are set out in both legislation and extra-statutory concessions.
Last year, the Government issued a Call for Evidence to understand how well (or otherwise) the current donor benefit rules are working, with a view to simplifying them. It has now launched a formal consultation. This article focuses exclusively on the changes that have been proposed for the most widely-used rule; the consultation covers broader territory.
At the moment, donors may receive up to 25% of the value of any donation under £100. For donations between £100 and £1k, they may receive up to £25. For donations over £1k, they may receive up to 5% of the value of the donation, up to a maximum of £2,500.
Proposals in the consultation
The consultation offers two alternatives for simplifying this.
The first would remove the monetary thresholds altogether. This could be implemented in one of two ways:
- A charity would deduct the cost of providing benefits from the gross amount of its Gift Aid donations, and claim Gift Aid on the net amount. The consultation provides a simple worked example, to illustrate how this would function. One advantage of this system is that charities would no longer have to calculate the market value of the benefits provided to donors – only the cost to them of providing it;
- Charities would deduct the market value of a benefit to a donor from the gross amount of the donation and claim Gift Aid on the net donation.
Both options could be implemented along with a disregard for low value benefits, exempting some benefits from the rules altogether.
The alternative is to reduce the number of thresholds from three to one, with the single threshold being expressed as a percentage of the value of the donation, up to a prescribed maximum aggregate benefit value. The consultation offers a worked example using 10% of the donation as the maximum permitted value of the donor benefit (and a maximum aggregate benefit of £2,500), but points out that it is not consulting on a percentage at this stage.
This option could also be implemented alongside a disregard for low value benefits.
The running theme in the consultation questions is whether the proposals would be simpler for charities. At the end of the paper, the Government invites suggestions as to how else the system could be reformed
If you require further information on anything covered in this briefing please contact Rachel Holmes ([email protected]; 020 3375 7561) or your usual contact at the firm on 020 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2016