Second Reading and Remaining Stages

Part of Small Charitable Donations Bill – in the House of Lords at 7:19 pm on 18 December 2012.

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Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 7:19, 18 December 2012

My Lords, this may be a slim Bill but, as has already been made clear, it is an important one and I warmly endorse the purposes behind it. I do so for the very obvious reason that it is common knowledge that fundraising for charities is not easy at present. Of the surveys that the noble Baroness referred to, at least one indicates the impact on charities of the economic crisis and subsequent recession. These competitive pressures have led to the emergence of some unusual stresses. Between 2.30 pm and 3 pm, we were discussing the Question from my noble friend Lord Naseby about the competitive pressure on the National Lottery. That body saw an increase of 8.6%, or £246 million, in the six months to September, but it is clearly concerned about its competitive position. So that macro-statistic, along with a lot of micro-statistics, indicate why this Bill is particularly important to smaller charities.

Turning to the Bill itself, I begin by congratulating my noble friend and the Government on the steps taken to increase accessibility. As he pointed out, the historic record required to enter the scheme is being eased from three out of the past seven years to two out of the past four, and the multiplier is being increased from 2:1 to 10:1. This will be particularly important for newly-established charities, which will not have a well established donor basis. My noble friend kindly arranged a briefing on the Bill last week. I have one or two questions, of which I gave him advance warning then.

The first question relates to the nature of the two qualifying years. Do they have to be consecutive or not? He reassured me at the briefing that they do not. I would be grateful if we could hear that on the Floor of the House, because there is a lot of sector interest in the detail of this Bill. Could he explain, therefore, how that ties in with Clause 2(2)? Clause 2 is headed, "Meaning of 'eligible charity'". Subsection (2) says:

"If a charity did not make any successful gift aid exemption claims in a period of 2 consecutive tax years, any claim ... is to be disregarded".

My noble friend indicated that "consecutive" was not an important word but the wording of the Bill seems to indicate that it might be. I am sure that his Bill team will have a simple answer to that, but it would be helpful to have it on the record.

The second area of concern is what I describe as "in again, out again". Smaller charities have periods of intense activity interspersed with periods of quietude. I will take an example of a medium-sized charity in a city, focused on homelessness. The charity may experience a period of very strong professional or volunteer leadership, which leads to a high level of activity; as a result, probably, a successful entry is made to the new gift aid scheme. However, after a time this dynamic leadership moves on and is succeeded by less active individuals. During this stewardship, among other things, gift aid applications are not made. After the fallow period, new people arrive once again, who find that gift aid applications were not made in any of the past four years. It would be helpful for us to know whether this will be a one-off entry-once in the scheme, you are in it-or whether there is a constant rolling programme whereby two out of four years must be kept in order for the charity to remain eligible.

On this part of this Bill, I need to make a plea on behalf of newly-formed charities. The House will be aware that the problem for many smaller charities is how to fund their central expenses-what we might describe as keeping the office warm and the lights on. It may be difficult to find funding for the provision of services but it can be found, whether it comes from local or national government or from grant-giving foundations; but not, for example, for the cost of preparing the bid for these contracts, or indeed for keeping the organisation running. For such charities this new gift aid scheme could be highly significant. Of course, the charity will have to be four years old before it can become eligible.

My noble friend quite properly and understandably underlined the dangers of tax evasion. I have no doubt that that may be thought to be more prevalent in newer charities. For all charities-new, old or well established-HMRC requires a "fit and proper" test to be met. Given the particular needs of newer charities, it would be helpful if my noble friend could explain why it was felt that the "fit and proper" test was not good enough for smaller charities when they were set up, and whether any thought has been given to other ways of including smaller, newer charities-for example, by having a lower level of multiple during those formative, probationary years, or perhaps a multiplier of only 5:1, as opposed to 10:1. Any danger of tax evasion would then be commensurately reduced.

My final set of questions is grouped around the heading, "What happens next?". In the Public Bill Committee in the other place on 16 October, Mr John Preston, the national stewardship officer for the Church of England, explained that the church currently spends 200,000 hours of volunteer time administering the present gift aid system. He expressed the hope to the Public Bill Committee that this time commitment would be reduced following the passage of the Bill. An illuminating remark followed from Mr John Hemming, the Liberal Democrat MP for Birmingham Yardley:

"What you are saying is that it is not necessarily stuff in the Bill", that matters,

"it is a question of how HMRC handles it. Referring specifically to the Bill, is there something we can simplify-to make it easier-or is it really just a question of how HMRC takes it?"-[Official Report, Commons, Public Bill Committee, 16/10/12; col. 5.]

It would be helpful, therefore-here I follow the noble Baroness, Lady Hayter of Kentish Town-to talk a little about the timetable for introducing the scheme and the nature of the publicity that will be followed. I assume that HMRC will write to every gift aid charity to try to publicise it in that way and to explain how these concessions would work. My noble friend referred in his opening remarks to the fact that guidance would be provided. I hope that he will forgive me for saying that the guidance needs to be very simple. These are small charities working on a shoestring; they do not have access to accountants or lawyers. The guidance needs to be as user-friendly as possible.

I gave my noble friend advance notice that I wanted to take the opportunity this evening to talk about the relationship between HMRC and charities. I wanted him to take on board-and perhaps discuss with HMRC-the attitude it is adopting towards the charitable status of many smaller charities. I want to give the House an example. This charity has an income of £15,849 in the year in question. In August 2012 it received a notice from HMRC asking it to complete a form CT600 (short), because it is a small charity. The form was sent off in September. Two weeks later HMRC returned the form, saying that it no longer accepted paper forms-HMRC had, of course, sent it out in the first place-and that filing had to be done online. To file online requires a user ID number, a UTR number-UTR stands for unique tax reference-and a corporation tax activation code. On receipt of these, about a fortnight later, the trustees tried to file again and were refused. They were told to wait because the corporation tax activation code was not yet working. After waiting two more weeks, they tried again; again, they could not file, because the link on the HMRC website that should have read "How to file a return" was missing. They then resorted to the HMRC helpdesk. They were logged on to a form which appeared to be CT600 (long)-in other words, for a large company-whereas they wanted a CT600 (short) form. Further inquiries to the helpdesk revealed that one logged on to the long form anyway and it automatically adjusted itself to the short form as one went along. However, this was not clear to the uninitiated in advance.

So it went on. The final surprise to the trustees was when they offered to send in a PDF of their audited accounts, which provides independent verification of their accuracy; they were told that these were not required. This process took from August 19 to November 5 -this for a charity with revenue below £16,000 per annum. I cannot begin to guess what the cost was to HMRC of all this backing and filling. However, this is just one of many examples. I hope that my noble friend will use this and, indeed, the other examples that I would be happy to provide to urge the tax authorities to be proportionate and open and to understand how the smaller charity sector works.

The second area I want to raise tonight is the tax position of foundations. I gave my noble friend a heads-up on this, and I am afraid that, because I had not dug into the full question, I may have slightly misled him. A family foundation with a permanent endowment is not able to reclaim the 10% advance corporation tax on the donations it gives. Foundations were caught up in Gordon Brown's raid on pension funds. Their income, and therefore their grant-giving potential, was reduced by 10%. The question on which I seek an answer tonight is: why should foundations not be able to gift aid that tax allowance to tax-recipient charities as private individuals can? It is not a question of double-dipping gift aid, because the permanent endowment on which gift aid may well have been claimed and taken remains intact. Why cannot gift aid be given on the returns that the permanent endowment has earned? I appreciate that these are technical questions but they are important to the charitable sector. I am not asking my noble friend to give a full response tonight; I am more than happy for him to write to me and put a copy in the Library. In welcoming this Bill, I am asking the Minister to make sure that all the good it is planned to do, and that we hope it will do, will not be undone by heavy-handed bureaucracy by the tax authorities.