Membership matters: subscriptions, consumer law and changes to Gift Aid

A recent debate in the House of Lords has offered reassurance to charities which currently claim Gift Aid on membership subscription payments, and which have been following with unease the progress of the Digital Markets, Competition and Consumers Bill (the Bill) through Parliament.

The Bill bolsters consumer protections in a number of areas, including in relation to certain forms of subscription contract. Concern had been expressed in the charity sector regarding the potential application of these additional protections to charitable membership subscriptions, and the effect this might have on their eligibility for Gift Aid.

What is the issue?

The Bill makes provision for the refund of subscription payments during a statutory “cooling off” period. In the case of contracts which automatically renew, an additional cooling-off period applies to each renewal.

A gift made to a charity by an individual qualifies for Gift Aid if it meets the conditions specified under section 416 of the Income Tax Act 2007 and a Gift Aid declaration relating to the gift is provided. One of the statutory conditions is a requirement that the gift is not “subject to a condition as to repayment”.

The concern is that the statutory right to a refund under the Bill might prohibit charities from claiming Gift Aid on the basis that it amounts to a condition as to repayment.

Donors, consumers, or both?

Underlying this issue is the perennial lack of alignment between two legitimate but contrasting policy aims: on the one hand, the desire to ensure that gifts to charity which attract tax relief are “true” donations, in the sense that they cannot later be reclaimed by donors, and on the other hand, the desire to offer a degree of protection to individuals who act on impulse and are later afflicted by buyer’s (or donor’s) remorse.

Charities have long had to wrestle with this lack of alignment, though the degree to which it has been acknowledged in legislation has been variable.

The Charities Act 1992 (parts of which remain in force) makes provision for a limited form of cooling-off period whereby a donor may revoke a donation of £100 or more within a period of seven days where it was made in response to a broadcast appeal. Both the specification of a threshold and the short time period in the 1992 Act indicate a charity-centric, proportionate approach to this balancing act reflective of the focus of the legislation on the voluntary sector.

More recently, charities have not fared so well. Some ten years ago, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (which the Bill will largely replace in relation to subscription contracts) gave rise to several issues which were of concern to charities which claimed Gift Aid on payments which were treated as donations but made pursuant to a contract, including membership subscriptions. These included imposing a 14-day cooling-off period for distance contracts and introducing prohibitions on the inclusion of additional payments – including those which took the form of a charitable donation – without a consumer’s express consent (including by the inclusion of a pre-ticked box). The “additional payment” issue prompted some tightening up of language around Gift Aid ticketing options to make it clear that the whole amount of the price of admission to cultural property would be treated as a donation for Gift Aid purposes and that there was no splitting out of a separate donation element. It also led to a reduction in the use of pre-ticked boxes for charity donations and a consequent loss of revenue for charities, which was clearly not the intention of the legislation.

In this context, the Bill is simply the latest development in the law of unintended consequences for charities which deal with people who are both donors for the purposes of Gift Aid and consumers for the purposes of consumer legislation.

The Government response

There were however promising signs for the sector when the Budget delivered by the Chancellor earlier this month acknowledged the issue in relation to the Bill and committed to ensuring that charities would not be disadvantaged as a result.

Amendments to the Bill had previously been tabled to list charity membership subscriptions which qualify for Gift Aid as “excluded contracts” pursuant to Clause 254 and Schedule 21 (Excluded Contracts) of the Bill, or alternatively to require the Secretary of State to provide further detail about how the provisions in the Bill relating to subscription contracts will impact Gift Aid before the relevant provisions came into force.

It now appears that the Government proposes to amend the consequential power in Clause 335 of the Bill to enable the Treasury to amend the Gift Aid rules in the Income Tax Act 2007 itself. This is an interesting decision by the Government, and one which may present an opportunity to address some of the other issues that commonly arise regarding the interrelationship of the law of gifts with other areas of law.

What changes can we expect?

The anticipated changes to ITA2007 could amend the requirement that a payment is not subject to any condition as to repayment, and/or include membership subscriptions within an existing carve-out for certain forms of payment.

As to the first, there is legal commentary to suggest that a condition as to repayment which is imposed by unrelated legislation (for example, Section 339 Insolvency Act 1986, which provides that a gift may be set aside if the donor becomes bankrupt within a specified period) is not a “condition as to repayment” for the purposes of Gift Aid, and that this exclusion should only really apply where the donor has expressly imposed such a condition as a term of the gift.[1] The extent to which a donor might have expressly or impliedly understood or intended a subscription payment to be subject to general consumer law is not clear cut, so clarification on this requirement is certainly to be welcomed. In this sense, the Government’s proposed approach presents an opportunity more clearly to define the sort of “condition as to repayment” that should disqualify a payment for Gift Aid purposes.

It remains to be seen to what extent amending the Gift Aid rules “at source” will address the position of members as both donors and consumers. It seems unlikely that this approach will disapply cooling-off periods altogether so questions will remain for charities as to when Gift Aid can legitimately be claimed. Lord Mendoza remarked in the recent Lords debate that “it cannot be right that we apply a cooling-off period to a form of charitable donation in the same way that you would to a TV subscription service. If I put £5 in the tin for the Royal British Legion, I do not expect to be able to claim it back the following week, saying “I made a mistake”.” However, retaining a limited cooling-off period may be desirable in some circumstances in the interests of promoting donor (and consumer) confidence – particularly where the relationship has a more transactional character. The 1992 Act is an example of how this might be framed in a more charity-friendly way.

Depending what changes are made to ITA2007, Treasury will wish to consider whether any changes should be made to the corresponding provisions of the Corporation Tax Act 2010.

Practical takeaways

Track the Bill (and related legislation): Charities which currently claim Gift Aid on membership subscriptions will wish to keep a close eye on the remaining passage of the Bill through Parliament, and to maintain pressure on Government to ensure that these matters are dealt with – and that there is proper consultation on the proposed amendments – before the Bill passes into law.

Clear communication with members: One thing that is clear from the current discussion is the need for clearly drafted terms and conditions regarding membership subscriptions, and equally clear communication about the nature of the payment that is being made. Much like the “additional payments” issue, charities are encouraged to be clear with their supporters that a membership subscription is treated as a donation for Gift Aid purposes and should primarily be viewed in that light.

New Charity Commission guidance: Finally, in the context of refunding payments that are treated as donations, charities will wish to consider the new guidance issued by the Charity Commission on Accepting, refusing and returning donations. While concerns have been expressed within the sector as to whether this guidance represents an oversimplification of the position, it is a helpful indicator of the regulator’s current approach to these matters.

[1] In Champions Fun Learning Centre v HMRC [2018] UKFTT 516 (TC), the First Tier Tribunal held (contrary to views expressed by HMRC) that the mere possibility of a refund was not a condition as to repayment: Gift Aid teaches HMRC a lesson (farrer.co.uk)