Clause 50 - Gift aid: giving through self-assessment return

Finance Bill – in a Public Bill Committee at 3:30 pm on 14th June 2012.

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

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hope to ask a few questions of the Minister so that we can make good progress, but the earlier point about being able to set out on the record broadly what the clauses do is important. I do not intend to spend too much time on that, but, in summary, clause 50 repeals the self-assessment donate scheme for self-assessment taxpayers to direct HMRC to pay any self-assessment tax refund to a charity of the taxpayer’s choice. If appropriate, gift aid can also be claimed on the donation. The scheme will be withdrawn for repayments of tax due in tax returns for 2011-12 and subsequent years and for any repayments made in respect of earlier tax years on or after 6 April 2012.

The Government have stated that the measure supports their objectives to simplify the tax system and to direct resources to encourage charitable giving to more cost-effective methods. The arguments for that included that the scheme was little used— given the number of people who fill in self-assessment returns, I would question whether people were made aware of it. Back in March 2011, when the proposal was first announced, an article in relation to Budget 2011 in The Guardian stated:

“Hidden away in the text is the abolition of Self-Assessment Donate (SA Donate), a little known scheme allowing donors to give to charity through their self-assessment tax return.”

The article continued with what is perhaps the general view:

“Not a huge loss to the sector, but something which will need to be looked at in terms of offering new ways for high rate taxpayers to give all of the tax paid on a donated amount to the charity.”

I hope that the Government will want to discuss that.

Will the Minister give us an update on the progress of the online claims system for gift aid and when it is expected that that system will be put in place? One argument that was made in favour of doing away with the self-assessment donate scheme was that a new scheme would be put in place. If that scheme is not ready to go—I am happy to take an intervention if she wants to deal with that—will she explain why this particular self-assessment donate scheme was withdrawn without that firm provision being in place? What impact assessment was made? Her comments about the importance of consultation and working with the various sectors were welcome, so will she explain exactly what assessment was made of the impact on charities that may lose out on donations when the scheme is withdrawn? Does she recognise that although most of the charities that have benefited from the scheme were the so-called top earners—the 15 big charities at the top of the league, I think—some were not? For such smaller charities, the loss of income may have a negative effect.

One of the Government’s other reasons for withdrawing the scheme was that it needed an extensive upgrade to safeguard it from fraud. What assessment have they made of how much was lost in fraud as a result of the scheme? How much do they think it would cost to safeguard against fraud? Will the Minister respond to those questions and give us that information? Again, we do not oppose the clause, but it is important to have the Government’s thinking clearly set out on record before we move on.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I shall be happy to try to tackle some of the questions. I shall take on the right and proper role of explaining what the clause does for a few minutes, if I may, before referring to the questions that have been posed.

The clause repeals the self-assessment donate scheme, SA donate, which has been little used, is expensive to administer and, as the hon. Lady has perhaps drawn out, is vulnerable to fraud. We have always said that the resources saved from administering the scheme will be used on a new online system for charities to file their gift aid claims, which, the hon. Lady will be pleased to hear, will be introduced in April 2013. Charities have been very keen for us to introduce such a system.

The SA donate scheme was introduced in 2005. It allows self-assessment taxpayers who are due a tax repayment from HMRC to redirect their payment to a charity of their choice. They may also claim gift aid on their donation if appropriate, and when they do so, HMRC pays the basic rate of tax on the donation to the charity. Budget 2011 announced the Government’s intention to withdraw the scheme for tax repayments made after 6 April 2012. I know that the hon. Lady will have been delighted that draft legislation on the clause was published on 6 December 2011 for consultation, but she may like to know that no responses were received. The resources saved from the scheme’s withdrawal will be redirected to support the introduction of the online claims system for gift aid, which charities have wanted for many years.

There are other reasons for withdrawing the scheme in addition to introducing the online claims system. The scheme has not been well used, is not cost-effective and has fraud implications. To put figures to usage, fewer than 3,000 taxpayers use SA donate each year; fewer than 2,500 charities have benefited from it in seven years; and the total amount donated through it is usually less than £400,000 per annum. By contrast, HMRC pays some £1 billion in gift aid to charities each year. As I have said, the SA donate scheme is vulnerable to fraud. Of course, one could argue that an alternative option would be to make the scheme more secure from fraud, but that would require extensive upgrading at a cost of at least £750,000, which, I am sure hon. Members would agree, may not be sensible.

I realise that some charities will be sorry about the withdrawal of SA donate, and that might be what was behind some of the hon. Lady’s questions. However, in the spirit of listening, I am pleased to tell the Committee that charities have told HMRC that they would prefer money that would otherwise have to be spent on upgrading the system to be used instead on an online system for them to make repayment claims. Updating the online gift aid system will benefit all 90,000 or so charities that currently claim gift aid, which I think most hon. Members will agree is a significant improvement on the 2,500 that might have benefited previously from the scheme.

To answer another of the hon. Lady’s questions, the impact assessment was published in the Budget papers, with which I am sure she is well familiar. On the question of the amount lost through fraud under the scheme, I do not have the figure at my fingertips, but I am happy to write to her to provide it.

The self-assessment donate scheme was, on the whole, poor value for money. It would have needed significant and disproportionate investment to make it more secure from fraud, and in these stringent times, the additional resources could not be justified. However, I assure the hon. Lady that combating fraud is a key priority of HMRC and the Treasury. By withdrawing SA donate and using the funds for an online filing system, the money will be better spent by benefiting more charities, which have asked for that change to be made. It will also work as part of the Government’s commitment to reducing administrative burdens on charities, and I therefore move that the clause stand part of the Bill.

Question put and agreed to.

Clause 50 ordered to stand part of the Bill.