CommentUK Economy

Gift Aid and the Great Charity Iceberg

The United Kingdom is currently home to 168,000 registered charities and over 6,000 Community Amateur Sports Clubs (CASCs). Both types of organisation have access to Gift Aid.

Gift Aid enables registered charities and CASCs to reclaim from the UK Treasury any basic rate personal tax paid on donations. There are few restrictions and it is very easy to apply for. Additionally the donor is able to reclaim related Higher rate and Additional rate tax.

Together this means that every £10 charity donation by a Basic-rate taxpayer will potentially cost the Treasury £2.50. For a Higher-rate tax payer this increases to £5. And £5.62 for an Additional-rate taxpayer. According to the Charity Tax Group, Gift Aid in 2016/2017 benefited registered charities to the tune of £1.27bn, in addition to the benefits accruing to eligible donors.

The Finance Act of 2010 extended Gift Aid to charities within all EU member states, Norway, Iceland and later also Liechtenstein.

To put this into perspective, the Homeless Reduction Act that recently came into force has a budget of £72.7m spread over 3 years to help local councils with its implementation.

Furthermore, registered charities also have access to several other benefits such as CGT exemption and relief on VAT and business rates. Nor are they unique to the UK. However I do believe that a much tighter control is required as to which charities can benefit from them and which can not. Either by tightening the registration requirements or by imposing additional requirements on the ability to claim Gift Aid.

This affects each and every taxpayer in the country, since the benefits originate in their pockets. And whilst I am not against Gift Aid per se, a more rigorous and restrictive application to its beneficiaries is definitely in order. Particularly when so little discretion is applied to what kind of organisation can claim charitable status.

It is very easy – too easy – for a Company Limited by Guarantee to obtain Charity Commission registration. All that is needed is £5000 in the bank and a few trustees (directors), and voilà, welcome to the wonderful world of Gift Aid.

As a vendor at one of the UK’s largest train stations I witness a steady stream of bucket wielding collectors, most of whom appear to be volunteers. And judging by the names and occasionally stated objectives, not to mention their presentation and general level of professionalism, some appear to possess genuine merit and others, possibly the majority, probably not. Interestingly, many even show signs of originating in the same stable: employing the same modus operandi and visual presentation.

Not that I hold myself up to be the sole arbiter of what’s good and bad, right and wrong, but with 40 years experience in business, most at the sharp end, one obtains a certain facility in spotting scams even at distance. Unfortunately the easy access to Gift Aid very much encourages nefarious practice.

If the Government were to put as much effort into weeding out bogus charities and underhanded practices in this sector as they now do in relation to benefits claims, there would be less wastage of taxpayer funds. Perhaps some serious effort could be put into addressing homelessness and its root causes.

As another example, I am sure that most readers have often had the misfortune to be walking along the street minding their own business only to be accosted by a frequently well-presented individual who will try his or her best to persuade you to sign up to regular payments to one or another charity. Frequently one of the big names. This is often through employing high pressure and skilful sales tactics by frequently well-paid and trained contractors. I posit that such techniques are akin to aggressive begging – aggressive fundraising – just more professionally done. It should be outlawed! But thank you Gift Aid for the experience.

Recent and ongoing revelations concerning the activities of certain high profile charities should be a wake-up call to the Government to do something about this wastage of taxpayer funds. And for sure what we are now witnessing with increasing frequency in the media is just the tip of the iceberg – the charity iceberg where most is hidden in deep murky waters.

What we need is greater transparency, accountability and good governance from the UK’s substantial charity sector. Indeed a total overhaul of the charity system and its access to the public purse would not go amiss.