Second Reading and Remaining Stages

Part of Small Charitable Donations Bill – in the House of Lords at 7:04 pm on 18 December 2012.

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Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 7:04, 18 December 2012

My Lords, the gift aid small donations scheme was announced as part of a package of measures to encourage charitable giving in the 2011 Budget. It is a complementary scheme to gift aid, which, as noble Lords will be aware, is one of the main tax reliefs available to charities and their donors and is now worth more than £1 billion per year to the charity sector.

The Government recognised, however, that charities were missing out on a significant amount of potential gift aid income because it is not practical for them to collect gift aid declarations from passers-by in the street or members of a congregation who give small cash donations. This Bill, therefore, enables charities to claim a gift aid-style top-up payment on those small cash donations without the need for a gift aid declaration. Most charities will be able to claim top-up payments on up to £5,000 worth of small cash donations in a tax year. This means that they will have up to an additional £1,250 of income each year to help advance their charitable purposes. This is a significant boost to the charitable sector, which will particularly help small and grass-roots charities. Her Majesty's Revenue and Customs estimates that this scheme will be worth approximately £100 million in additional funding to the sector each year once the scheme is fully up and running.

In constructing the scheme, the Government have had to strike a balance. The scheme must be fair and affordable, and it must be protected from fraud. Unfortunately, all repayment schemes attract fraud. HMRC already experiences fraudulent claims for gift aid-which is a more secure system than the new scheme will be-because charities have to keep more records of their gift aid donations. The gift aid small donations scheme is cash-based, so there will be only a limited paper trail. That means that it is highly likely that some fraudsters will be attracted to the new scheme, so it has been necessary to put some safeguards in place.

First, a charity must have had at least two years of a good gift aid track record with HMRC and have made successful gift aid claims in at least two out of the last four tax years. This will allow HMRC to get a good picture of a charity's ability to claim gift aid correctly.

Secondly, charities and community amateur sports clubs must also claim gift aid alongside any claims for top-up payments under the gift aid small donations scheme. This means that a charity will need to successfully claim on traditional gift aid donations worth at least 10% of their claims under the new scheme in the same tax year. For example, to claim top-up payments on £5,000 of small donations, a charity must also claim gift aid on at least £500 of other donations in that year. This matching requirement allows HMRC to monitor the continuing compliance of the charity. The new scheme is designed to be light on paperwork, so it will be difficult for HMRC to comprehensively check whether a charity is compliant. So the ability to check the gift aid claimed by the charity gives HMRC a reasonable proxy to ensure that the charity is also claiming correctly under the new scheme.

Following representations in another place that the eligibility criteria were too strict, the Government tabled amendments that have reduced the matching condition from a minimum of 50% of gift-aided donations to 10%. The Government also agreed to reduce the eligibility criteria to claim under the scheme. A charity may become eligible to claim under the scheme after two complete tax years instead of three. In addition, instead of maintaining a gift aid claims record in at least three years out of seven, charities will need to claim in only two years out of four. These changes make the scheme more accessible, increasing the number of charities that can benefit and reducing the burden placed upon them.

As well as being accessible and protected, the scheme is designed to be fair. The Government recognised that an allowance of £5,000 per charity would have significantly inequitable results for some charities. Charities that perform similar activities are often structured differently for historical reasons. That means that, if every charity received this £5,000 allowance only, some charities could claim many hundreds-if not thousands-of times more in top-up payments than others. For example, every parish church in the Church of England is a charity, while the Roman Catholic Church is structured with a charity at diocese level, with some 200 parish churches forming part of each charity. Without special rules, the Church of England would have been eligible for many hundreds of times more claims under the scheme than the Catholic Church.

For this reason we have introduced the community buildings rules. These enable charities to claim on an extra £5,000 allowance if they conduct charitable activities in a community building and meet certain other criteria. Charities that meet the criteria will be able to claim on an extra £5,000 worth of small donations for each building in which they carry out charitable activities. HMRC will be issuing guidance to help charities understand the legislation and whether it applies to them. For charities that are unsure of their status, HMRC will be happy to give bespoke guidance.

This Bill represents a boost to the charitable sector by enabling charities to claim new top-up payments on small donations where it is currently difficult or impossible to collect the necessary paperwork for gift aid to apply. I commend the Bill to the House.