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Farrer & Co | Making the Gift Aid Small Donations Scheme more user-friendly

In the 2015 Autumn Statement, the Government announced that it was bringing forward a review of the Gift Aid Small Donations Scheme (GASDS). This announcement was prompted by figures showing that take-up of the scheme was disappointingly low.

A Call for Evidence was issued in December 2015, and a consultation launched in April this year – which ended on 1 July – set out specific proposals for simplifying the scheme.

The Government has now responded to the consultation submissions and put a Bill before Parliament to amend the GASDS. The Bill has already been criticised in some quarters as not going far enough and it may change during its passage through Parliament. However, as currently drafted, these are the changes it will make.

Eligibility to claim

At present, to claim under the GASDS, a charity must (1) have been registered with HMRC for at least two full tax years, and (2) have made successful Gift Aid claims in at least two of the four previous tax years, with no more than a two-year gap between claims.

Clause 1 removes these criteria. Although this should make it easier for charities to claim the relief, the "matching rule" will remain, which requires charities to claim Gift Aid on at least £1 of donations for every £10 of donations on which they make a claim under the GASDS. So far, the Government has rejected calls to alter this rule.

Small cash donations

Top-up payments are only available on cash payments of £20 or less.

Although the £20 limit will remain, Clause 2 amends the meaning of "small donation" to bring contactless payments of £20 or less within the scope of the GASDS. The definition of "contactless payment" includes donations made by apps such as Apple Pay and Android Pay, as well as donations made using a contactless card.

Community buildings rules

Since 6 April 2016, a charity has been able to claim the GASDS top-up on donations of up to £8,000 for each community building in which it runs "charitable activities", in addition to claiming the general £8,000 GASDS allowance (provided, in both cases, that it has matching Gift Aid donations). Essentially, a charity will be "running charitable activities in a community building" if it carries out charitable activities in a community building for a group of at least ten people who are beneficiaries. To qualify, the charitable activities must be run in the building on at least six occasions each year, with a "community building" being defined as a building (or those parts of it) to which the public has access some or all of the time.

Where charities are connected (broadly speaking, this means they are controlled by the same person/entity and have the same or similar purposes), their small donations are pooled, but donations received in "community buildings" are not. Again, this means that connected charities can claim up to £8,000 on their pooled donations as well as up to £8,000 of donations per community building.

The Government considered that these rules were not achieving their original policy aim and proposed changing them to allow a charity (or group of charities) to claim either under the main GASDS allowance or the community buildings allowance, but not under both.

Clauses 3 and 4 of the Bill implement these changes

Clause 3 provides that the maximum amount of small donations on which a charity with more than one community building may claim a top-up payment in a tax year will be the lesser of £8,000 or the total of the "community building amounts".

At the moment, only donations made inside a community building count towards the community building amount. Some respondents to the Call for Evidence explained that, despite being based in a community building, they were unable to use the allowance because most of their collections took place outside the building.

The Government has decided that charities should be able to make GASDS claims on donations made in these circumstances: the Bill provides that the "community building amount" will be the lesser of £8,000 or "the sum of the small donations made to the charity in the tax year that are made in person in the local authority area in which the community building is situated". If a charity has more than one community building in a local authority area, a small donation can only be included in the community building amount of one of them and, if the donation was made in a particular building, it must be included in the community building amount for that building.

So although the meaning of "running charitable activities in a community building" will remain more or less unchanged, donations will no longer have to be made in the building itself while charitable activities are being carried out, in order to count towards the community building amount.

Clause 4 amends the rules on connected charities that run activities in community buildings. Under the Bill, these charities will be able to claim the lesser of £8,000 of small donations or on the sum of their community building amounts. The default position will be the latter, presumably on the basis that, if they do run charitable activities in their community buildings, this option is likely to enable them to claim more under the GASDS. If, instead, they want to use the general £8,000 allowance between them in a particular tax year, then all the connected charities must give notice to that effect to HMRC. Parliament may make regulations setting out the time limits, form and content of these notices.

If the Bill passes, the new system will apply to tax years from 6 April 2017 onwards. You can read the Bill, its Explanatory Notes (and, if you're interested, the debates on it) on Parliament's website.

If you require further information on anything covered in this briefing please contact Rachel Holmes (rachel.holmes@farrer.co.uk; 020 3375 7561) or your usual contact at the firm on 020 3375 7000. Further information can also be found on our Charities page.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2016

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