Clause 83 - Giving through the self-assessment return

Finance Bill – in a Public Bill Committee at 10:30 am on 18th May 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

The Paymaster General brought the full weight of her 10 years' experience to bear on the previous clause, but I do not think that the full 10 years of anyone's experience is required for the next clause, with which, I hope, the majority of us agree in principle. However, a number of questions arise from it.

We welcome the clause in principle and think that gift aid is a step forward. It provides that self-assessment taxpayers can donate all or part of any self-assessment repayment from the Inland Revenue to a nominated charity. Under the clause, that will then qualify for gift aid. To qualify, charities must apply to be added to an Inland Revenue list. That is a summary of the scheme. I have seven questions for the Economic Secretary, and shall go through them as fast as I can, although I expect that he knows what most of them are.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

I will go at just the right speed and if the Economic Secretary thinks that I am going too fast, he should nod his head or make some gesture. What are the criteria for going on the list? I have not seen them spelled out anywhere. Who is policing the list? About 35,000 charities are on it, so it would be helpful to know what those criteria are.

There are a number of concerns about large, one-off repayments. Prudent taxpayers may want to be generous but may not necessarily want to give all of a large, one-off repayment to a charity, so they will set a limit. Can the Minister consider highlighting the possibility of a limit on the tax return? I have a copy of the guidance in the tax return that is being sent out, which has already been amended to take account of the clause. In order to save time, I shall not read the relevant passages out, but a very long way down, my concern is highlighted—perhaps that is too strong a word—by the paragraph that begins:

''Do you want to nominate a charity to receive all or part of your repayment?''

That must be flagged up. Can the Economic Secretary take a careful look at it? When he has done so, he may agree with me that it must be higher up in the text. We want people to give, but not more money than they might have intended. We do not want them to make a large, one-off payment when they wanted to give only part of it. The fact that the text is tucked away so low will play into the hands of those who have advisers, who will certainly recommend a limit as a matter of course, whereas those who are unadvised and are using self-assessment returns will not.

There is the important question of mistakes. When, as inevitably happens from time to time, a repayment award is made in error—even the Inland Revenue makes occasional mistakes—that money presumably goes to the charity, and the error is discovered. What happens then? I understand that the intention is that the Inland Revenue will claw that money back from the charity, which, in certain circumstances and with certain charities, will be difficult. That raises a number of questions. How in practice will that be accomplished by all 35,000 charities? Are those

charities vetted to get on the list of those that have the financial capacity to make repayments that have been made in error?

Secondly, will the Inland Revenue assure us that it will not go back to the taxpayer for that money? Thirdly, in any case, will the taxpayer not need to be informed? If he is a higher rate payer, he will need to know so that he can claim higher rate gift aid tax relief. He must be told.

Fourthly, when the error is by a taxpayer, the Revenue will of course want to recover the money from them as it already does when money is paid to a nominee. In the case in question, the money is to a charity, and it might be asking a lot of a taxpayer to refund in those circumstances. I understand why the Revenue would want to enforce that, but I can see some problems ahead.

When I considered the issue of mistakes, I concluded that not all the angles of the clause had been thought through. I have raised several questions and I ask the Economic Secretary to consider them, even if he cannot answer them now.

I have a few more questions.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

The hon. Gentleman is shocked, but there are more points to be made.

Will the Economic Secretary explain why an election cannot be made under section 98 of the Finance Act 2002? Why can a repayment of gift aid relief not be carried back a year? I have not seen an explanation for that. Why is it restricted to self-assessment? The Government are reducing self-assessment; higher rate taxpayers are no longer automatically included, so would it not be logical to help charities by enabling those that regularly receive tax repayments to use the provision? They are the so-called R40 claims cases.

Incidentally, in a representation from the Chartered Institute of Taxation, it was pointed out to me that the Economic Secretary suggested that that was his intention when he introduced the provisions a couple of years ago. He said:

''I reassure him that the carry-back provision that we are discussing is available to all taxpayers. The self-assessment return is simply a convenient mechanism for claiming it; the Government and the Inland Revenue will make available alternative routes for those who do not receive self-assessment returns.''—[Official Report, Standing Committee F, 13 June 2002; c. 402-403.]

It seems that the Government originally intended that provision, but that they are not now enacting it.

Finally, on the question of short returns, will those using the new short forms from April next year be eligible for the scheme? As far as I am aware, they are not currently. This is the second trial year of short returns. Why have they been omitted? Is it because of complexity? Is the Economic Secretary sure that they need to be omitted?

Photo of John Healey John Healey The Economic Secretary to the Treasury

As the hon. Gentleman says, the clause introduces a new facility on self-assessment returns to allow individuals to give all or a specified amount of

their tax repayment to charity. The taxpayer will specify to which charity the donation is to be made and they will be able to make a gift aid declaration on the return so that the donation can be worth even more to the charity. The taxpayer can also choose to remain anonymous and still make the donation under gift aid.

I welcome the welcome in principle for the clause from the hon. Member for Chichester (Mr. Tyrie). I lost count of the precise number of questions that he asked, but I hope that I have not lost track of the points that he wanted answering. On the question of highlighting a possible limit, I will consider his points made and determine whether due and appropriate attention has been given to making taxpayers aware of it.

That was No. 1—no, in fact it was the hon. Gentleman's question No. 2, but to return to his first question, there are some 38,000 charities on the list and the number is increasing all the time. Charities have the opportunity to enter their names on it throughout the year, and it is regularly updated so that taxpayers can access the information. There are no criteria—there is a process. That is because, by asking charities to put themselves forward for inclusion we can offer taxpayers a single list from which to choose that does not exist anywhere else. If there were another suitable and comprehensive list, we would use it. All that the taxpayer has to enter on the return is the code for the charity. That should eliminate errors and confusion about which charity has been chosen to benefit from the repayments. The approach has allowed the Inland Revenue to develop a streamlined process. The charities signing up have simply to provide their bank account details, allowing donations to be paid directly into their accounts. Charities receive the tax repayments on gift aid donations made that way without having to make claims.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

Just to clarify that, is the policeman for the list the Charity Commission?

Photo of John Healey John Healey The Economic Secretary to the Treasury

That is not strictly true—it is an administrative list that does not bestow or signify any status. It is compiled and maintained by the Inland Revenue because no suitable list is held by any other body. It allows the Revenue to hold, at the charities' instigation, the information that is required to make the clause effective from the point of view of the Revenue and of the charities, and to make the matter as simple as possible for taxpayers.

The hon. Gentleman also asked about errors—in particular, those that the Inland Revenue might make. Where, because of a mistake by the Revenue, a repayment is sent in error to a charity, the Revenue will request return of the payment by the charity. The taxpayer will not need to take any action.

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

Will the taxpayer be informed that he can claim higher rate gift aid relief?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I am dealing here with the error that the Inland Revenue might make in directing a payment to the wrong charity. That should not affect the taxpayer in any way.

I come to the question of why there cannot be a carry-back. The hon. Gentleman referred to the reforms in the Finance Act 2002. The provision that he referred to as section 98, allowing donations to be treated as having been made in the previous year, would not work in this situation. A donation needs to be made before the return for the previous year is filed. However, the donation of a repayment cannot be made until after the return is filed. The return generates the repayment and therefore the donation. At that point, a taxpayer cannot be certain of the precise amount of a repayment and cannot therefore claim the relief in that return.

He also asks about the new short return. As he knows, a pilot version of the short return has been issued to 400,000 people for the current tax payment year. He is right that it does not contain the facility for taxpayers to donate repayments to charity. That is because the form was built on the version that we used in the previous year during the much smaller pilot. I can confirm that the facility should be on the form for 2004-05 and we expect that that will be issued to 1.5 million taxpayers.

The measure offers a new, simple way for individuals to make donations to charity. Taxpayers will be prompted, in completing their returns, to consider charitable giving. They will also be encouraged to make use of gift aid. Charities should therefore benefit from more donations and from extra tax on donations that are gift-aided. Currently the amount is 28p in every pound donated.

I hope that members of the Committee will see the measure as the latest in a series that we have implemented to boost charitable giving—notably those in the 2000 package—that have proved to be a significant success for charities. In 1999-2000 about 43,000 charities claimed gift aid. In 2003-04 the number was about 56,000. In 2000-01, charities claimed £222 million in gift aid. Two years later, the sum was £506 million—nearly two and a half times the amount of tax relief topping up charity incomes. Charities see great potential in the new facility brought in under clause 83. There are about 3 million self-assessed repayments each year, totalling about £3 billion.

Finally, charities will receive the donations automatically through bank automated clearance system—BACS—transfer, and will receive tax repayments on any gift-aided donations without making any claims to the Inland Revenue. The system is very easy for charities. As I have explained, charities that are not yet on the list can be added throughout the year.

Question put and agreed to.

Clause 83 ordered to stand part of the Bill.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. Before the hon. Gentleman raises his point of order, I want to point out that there is a large group of amendments to schedule 15. Clause 84 gives effect to schedule 15 and specifies the start year. I suggest that if members of the Committee want

to make any points about the general principle of inheritance tax they should do it in the debate on clause 84, because by the time we have dealt with the group of amendments, we will have eaten into the time on schedule 15 and it will not be possible to have that debate. Does the hon. Gentleman still want to raise his point of order?

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

I do not. I thank you, Mr. McWilliam, for anticipating what I was going to say.Clause 84 Charge to income tax by reference to enjoyment of property previously owned