United Kingdom
Gift aid claims are going online - by Paul Knight
What does this mean for the charities and donors?
The way in which charities claim Gift Aid is changing this year in perhaps the most significant way since the scheme began, with the introduction of “Charities Online”.
Under the new system, nearly all charities will need to complete an online Gift Aid claim form that will provide the data electronically to HMRC’s systems.
Charities are rightly worried about the change, and perhaps donors will become so too. Anyone involved with charities either in running them, or giving to them, should be aware of these changes.
Gift Aid is the tax relief system that allows charities to reclaim basic rate tax on donations received from UK taxpayers. Until now charities have made their tax reclaim on a paper form sent to HM Revenue & Customs (HMRC) listing the name of the donor and the amount donated.
Under the current system, very few checks on the validity of a claim are made before HMRC make the repayment, which is one of the reasons Gift Aid has been the target of many fraudulent claims over the years. HMRC police the system by carrying out Gift Aid audits either at random or where they have concerns over the data, normally after the charity has received the repayment.
This approach could be set to change fundamentally under Charities Online.
I hosted a seminar on Charities Online with the Charity Tax Group this month, at which HMRC set out their expectations for the new system. HMRC articulated the proposed benefits for charities around reduced compliance and clearer processes. In addition, HMRC expects the new approach to enable it to automatically match data on a Gift Aid form to other information they hold. They believe this system could be a powerful tool to spot suspicious claims.
Notably, one critical new field of data on the online form will be the donor’s address, in addition to the current requirement for a name and donation amount. The donor’s address was not previously something HMRC would have sight of outside an audit.
This proposed data matching brings with it some interesting questions, both for charities and donors.
For charities we will be interested to see to what extent HMRC will seek to deny repayment claims where Gift Aid data does not match their other records.
One of the key principles underlying Gift Aid is that the donor must have paid sufficient UK tax to cover all the Gift Aid. If HMRC will have the ability to cross refer Gift Aid donations to individual’s tax records, this will be the first time HMRC will be able to meaningfully check this aspect of Gift Aid, and it could in theory be done on an automated mass scale.
The large scale cross referencing of data brings a number of other possible concerns. Misread names or addresses that get uploaded into the Gift Aid claim could lead to HMRC asserting no such donor exists. Similarly, what will happen when a donor moves and they do not inform the charity? We await HMRC’s commentary.
There has been no announcement that HMRC will look to block claims automatically where they cannot match all the donor information to their other records. That said, if the results of their data crunching indicate widespread errors, it seems conceivable that an automated rejection step could be brought in.
For donors, BDO has asked HMRC whether they are concerned that this level of cross checking may have an impact on giving behaviour, and whether charities should now warn donors that HMRC will be checking their records in the background every time they agree to make a Gift Aid donation.
It would be an unfortunate side effect of this system if donors start to become reticent to use the scheme for fear of drawing HMRC’s attention to their tax affairs, even if such a concern is unfounded.
Whilst the primary reaction to Charities Online in the short term is rightly being placed on assisting charities move from the paper to the online system with the minimum impact on income levels, the longer term impact of this change remains as the big unknown, both for charities and their donors.
BDO is at the centre of this development, with direct links to HMRC and sector lobbying groups, and will continue to keep their clients informed of the impact of the changes.
For more information or advice please contact Paul Knight: paul.knight@bdo.co.uk