Charlotte Ravenscroft, Helen Donoghue and Cath Lee gave evidence.

We will now hear evidence from representatives of the National Council for Voluntary Organisations, the Charity Tax Group and the Small Charities Coalition. Welcome to our meeting, and please introduce yourselves to the Committee.

Charlotte Ravenscroft: Good morning. I am Charlotte Ravenscroft, policy manager at the National Council for Voluntary Organisations.

Helen Donoghue: I am Helen Donoghue, director of the Charity Tax Group.

Cath Lee: I am Cath Lee, and I am chief executive of the Small Charities Coalition.

Q 31

Thank you very much for coming to give evidence this morning. Could you set out what problems charities might have in achieving the eligibility criteria to receive the full £1,250 in grant?

Charlotte Ravenscroft: Overall, we were very encouraged when the Bill was announced and the Chancellor said that it would deliver gift aid on the contents of the collecting tin and the street bucket, without the need for gift aid forms. A lot of charities were very encouraged by that message. We still strongly support the Bill’s potential to make a big difference for charities, but we think that charities could face problems with the eligibility rules in three areas: first, the three-year track record of making gift aid claims; secondly, the matching rule; and thirdly, certain provisions of the community buildings rules, although those mainly apply to charities with group structures. The three-year track record and the matching rule present the most difficulty, particularly for small charities.

Helen Donoghue: I endorse that. From the outset, we have been concerned about the matching provisions being onerous. We would like to see the three-year rule changed in the way that Kevin Russell outlined earlier, such that there is some sort of sliding scale so that smaller and new charities could be encouraged to take advantage of this new provision, without having to wait for potentially four years.

Cath Lee: We also agree that those are the key barriers to the scheme benefitting as many charities as it could. However, we welcome the scheme for this sector because we recognise that it will result in increased income for the sector, and it should result in an increase in the take-up of gift aid. We perceive that there are three main categories of small charities that will find it particularly difficult to benefit from the scheme. The first is start-up charities, because it will be a huge challenge for them to develop and keep going to the stage when they can meet the three-year eligibility criterion. The second group is those charities that do not already use the gift aid system and whose main sources of income are not easily gift aidable or are not gift aidable at all; they and charities that are diversifying their income, perhaps by trying to increase the number of individual donors where gift aid can be claimed, will be at a disadvantage in meeting the three-year track record. The third group is those charities that just lack the capacity to engage with the gift aid system as it is. That is not necessarily to do with size, but is to do with their  level of skill and expertise, and also their appetite for taking on board a scheme that, in some ways, can be complex. In its most simple form—individual donors—it is perceived to be simple, but when more complicated applications of the gift aid system come into play, the complexity that that poses to small charities and organisations that are run largely by volunteers becomes a barrier to their ability to take up the benefit.

Q 32

Could you make those concerns a bit more real by giving us examples of real-life organisations that could lose out from the Bill as drafted?

Cath Lee: I spoke to one of my members yesterday. The other point that I am keen to make is that, for small charities—when I say small, although our definition of small is income under £1 million, 40% of our members have under £50,000 income, so they are absolutely tiny and are run by their trustees—it has been a real struggle to get case studies to bring to you today. That is because small charities are firefighting; they are doing day-to-day operations, so this is not really priority for them. They are dealing with trying to get money in, which is a perennial issue for tiny charities. Some of them—the larger small charities—are dealing with cuts, so for them to be engaging with this as an issue that they need to take on board, respond to and give evidence to in order for it to benefit them is a real challenge.

With that as the context, I have struggled to get some case studies, but I did manage to speak to somebody yesterday who was interesting because she and her organisation represent the two barriers. Her day job is as a fundraising director for a fairly large small charity, with an income of £500,000 to £750,000. Most of their income comes from statutory sources and grants from trusts and foundations. They do not have a very high level of gift aidable income; they do not have an individual donor base. However, looking on their website, I discovered that they ran a whole range of fundraising activities, on some of which they would be able to claim gift aid. Her response, though, was, “It’s not for us.”

The other reason this member was interesting was that she is also on her local PTA. For them, the challenges are slightly different: they are very small and they are governed by the constitution set by the PTA Association—the national body—which requires them to turn over their PTA members every single year. That gives them real barriers in terms of consistency to being able to learn and apply the system for gift aid, so they do not claim it. For them, the benefits do not outweigh the effort it would require.

That is an example for me of how two very different types of organisation could lose out on the potential benefit of this measure because of the three-year track record. There is a barrier to them taking out gift aid, so there is a barrier to them getting past the first hurdle.

Charlotte Ravenscroft: If I may come in on this, I can answer in terms of numbers of charities that would be affected and just mention a few examples. In terms of the three-year track record, we know that each year about 65,000 charities are claiming gift aid, but we know that the total number of charities in the sector across the UK is around 163,000, so as you can see, we are talking about only about a third of all charities that currently claim gift aid. Of those, obviously not all of the 65,000 will have been claiming it consistently for three years, so those are the kinds of proportions we are looking at in relation to three-year track records.

NCVO contacted some of our smaller members to ask whether this provision would be an issue for them and we had a couple of dozen responses back from organisations as diverse as the Telford and Wrekin Senior Citizens’ Forum, the Wiltshire Rural Music School, Cumbria Action for Sustainability and Southside Young Leaders’ Academy. We had a whole range of our smaller members telling us that they do not yet have that three-year track record of gift aid claims, so that is a starting point for them. It means that they will not be able to access the scheme for at least those few years it takes them to build up that track record.

You also asked about the matching rule. In terms of numbers, this is a very important issue. Whenever HMRC talks about the matching rules, it says, “Oh, it’s very straightforward. If the charity has £5,000 of small cash donations, it can claim up to £1,250.” It is not that simple. There are 25,000 charities claiming gift aid for an amount below £1,000 each year, so about one third of the total 65,000 charities using the gift aid scheme are claiming less than £1,000 a year. We could guess that maybe half of those will be caught by this matching rule, because they might be claiming less than £625 a year in gift aid, which is the minimum amount that you need in order to claim the small donations limit.

What those numbers actually mean is that there is essentially one rule for the medium and large organisations and potentially 10,000 different rules for the smallest organisations, because of the matching principle, whereby they will each have their own individual limit, which will change each year. We think this is particularly difficult for the smaller charities and it hugely complicates a scheme that should be as simple as HMRC says it will be.

Specific examples include the Comfrey Project, a charity in the north-east that supports refugees and asylum seekers to set up allotments, which told me that the matching scheme and the three-year lead-in will be issues for them; and Vita Nova, a small theatre group in Bournemouth that supports people recovering from drug and alcohol addiction problems to deliver theatre productions. Those are the kind of normal, small charities that will be really affected by both the three-year rule and the matching principle.

Helen Donoghue: Whereas we do share concerns about the matching provisions and the three-year rule, the evidence would suggest that charities, such as the Churches and even very small organisations, that already have a good gift aid claim history will be able to take advantage of this. We therefore think it would be useful to have this as an incentive to encourage people to take up gift aid, which we understand is very much part of the Government and HMRC’s objective in trying to keep the scheme attached to gift aid in some format, and why it is called the gift aid small donations scheme. It is a two-edged sword. We really want to ensure that small organisations can take advantage, so some flexibility and a sliding scale would—this is a view that seems to be shared across the sector—be very helpful in encouraging participation.

Q 33

I find it quite interesting that in the first evidence session we had three men from religious organisations and we now have three ladies from non-governmental organisations and the voluntary sector. Welcome to you all and thank you for coming.

How much do the organisations that you work for feel that the Bill will have an overall benefit?

Helen Donoghue: There is widespread support and if we can just get some of the smaller things that we have been talking about sorted out, the scheme will take off and will be very helpful and successful. Everybody in the sector has enjoyed gift aid and wants to make gift aid work as effectively as possible. This is really to try to capture the donations that are made where gift aid cannot be used. You were talking to the Churches before, and there are circumstances where you just cannot fill in the gift aid form—you might be at a community event where you have already made a regular donation or made a donation in response to an appeal for something, but you want to support the event and give an additional donation and do not necessarily want to be filling in a gift aid form. It all helps. There is a lot of support; it is just a question of ensuring that the fine detail is worked out to make sure that it benefits everybody as much as possible.

Cath Lee: It will be of benefit, so the worst thing that could happen would be for it not to be there at all. No one in the sector wants that. More of our members could benefit if there were some flexibility around the three-year track record on gift aid and, in particular, the matching, because that adds a layer of complication in understanding the scheme. Take-up would be encouraged if people knew that it was just one time: you put your small donations in and you get your top-up payment back. That is a much simpler concept for people to deal with than having to think about whether they have put the right amount in the right tax year, whether it is matched and whether that changes next year, all in the context of having very few people to do that and lack of consistency. So it will be of benefit and there will be members of ours that will definitely benefit from this.

I was at a training event that we ran earlier in the year in a session about charity tax in broader terms, and this scheme came up. Within that group, six of the nine attendees did not know about it—they were completely unaware. That is one of the first things to be addressed: awareness. Of those six who were unaware, two said they were not going to bother, that it sounded far too complicated and they did not have the resources even to read the documentation and get the benefit of guidance; and two others said it was great and they would start gift aid and get the clock ticking.

The sector, and the very small end of it, is far from homogenous. It is difficult to talk about one-size-fits-all scenarios. Flexibility is key in order to be able torespond and benefit as many charities as possible, within the spirit of the announcement in the Budget last year.

Q 34

May I push you a bit on the three years? Do you not feel it is worthwhile? I can understand why you were saying that it would be nice if it was perhaps less, but is it not important to have some safeguards in there, so that to say that an NGO or a charity has to prove itself first is reasonable, and that is why there is that three-year rule?

Charlotte Ravenscroft: In terms of gift aid, the main rationale for linking the two schemes is the fraud prevention measures and checks that are done on charities when they register for gift aid, so they are already on HMRC’s books and have gone through those checks, such as the fit and proper person test on their management. Those  checks are mainly done at the start, when you register for gift aid, and we see that it makes sense that the schemes are linked: you must be registered for gift aid and be making some claims through gift aid. However, I am not sure how much additional protection the full three years provision builds in. That is why we would prefer a tapering system, so that if you are a new charity or registering for the first time for gift aid, there would be some way into the scheme for you. You would not have to wait for that three or potentially four years for it to kick in.

Helen Donoghue: Yes, that is the important point. You might not want to give everybody the full £5,000 immediately, but if you could do it incrementally it would be an incentive to get people organised from day one, and using gift aid as well from day one, if possible.

Q 35

Given that the link with gift aid and the three-year registration period is designed to counter fraud, can you think of other ways that might deal with that equally effectively?

Charlotte Ravenscroft: As far as we are concerned, it makes sense to link it with the gift aid scheme because it does have those particular checks built in to it. We recognise why that has been done. At earlier stages we wondered whether there could be a different application process for the scheme, but on balance we can see why it is simpler just to tie it to the gift aid registration process. We see that that process does help to prevent fraud. I am not aware of how many specific cases there are at particular later stages or whether it makes a huge difference whether you can register for two or three years. It is the principle: if you are starting up a new charity, you should be able to access things on a par, or at least getting to a par, with those charities that have been around a while.

Helen Donoghue: As one of the previous witnesses said, setting up a different sort of registration system would just add complexity. We would support its being tied to gift aid. That does, as Charlotte says, give you the added protection.

Cath Lee: And we are where we are. We work with what we have got in small charities. What we have got is a very good gift aid system that benefits huge numbers of charities. It could benefit more, and this could benefit those charities if they were more easily able to take it up. That benefit would reach further down the size spectrum of charities.

Q 36

It seems that tying in with gift aid makes sense, but from your knowledge of your sectors, how many, or what percentage of charities would find it extremely difficult to get any gift-aided income because they are aimed at and supported by groups who are not taxpayers—older people, young people, students or those on low income, perhaps? Do you have any figures on that?

Charlotte Ravenscroft: I do not have specific figures on that, but as I said earlier, I think around a third of charities are using the gift aid scheme, so for various reasons a lot of charities do not. As you say, some of that will be because their donors are students and non-taxpayers, but for a lot of others it will just be because of the nature of their income streams—they might be getting more of their funds from grants or contracts, rather than from individual giving.

Cath Lee: I do not have anything specifically on the people who are not taxpayers, but this is about where they get their money from. Very small charities tend to earn their money through cash, but that sometimes comes through events, so would not necessarily qualify anyway. Then, as you go up the spectrum in terms of size, there is a more diverse mix. Awareness of what can and cannot be claimed in the gift aid system needs to be worked on, because some people do not realise that what they are doing would fit within that scheme.

Q 37

Can I go on to the matching principle that we have been talking about? I was very interested in points you made earlier, Ms Ravenscroft, about some of the small charities. When I first saw the figure of £625, I thought, “Well, it’s not that much,” but if the small charity that I managed in north London is anything to go by, it is quite possible to have quite a diversity of income sources and not reach that figure every year.

This is not just about charities the bulk of whose income comes from statutory sources. There are, as Mr Lefroy said, a whole range of other things involved to do with, say, non-taxpayers. Some charities will have reasonably sizeable donations from Church or other faith congregations, charitable trusts and, in some cases, legacies. In many communities, events are a more usual source of fundraising. All those activities are good in themselves—I know arguments can be made about the tax status of charitable trusts, Churches or whatever—but the end result, under the terms of the Bill, is that people cannot claim. How do you think we get round that, so that we are not saying to small charities, “Go back to your drawing boards and waste all the time you would have spent running your organisations thinking about whether you can get church members to give to you directly or get the money in other ways”? Would it not be best if this principle was dropped?

Charlotte Ravenscroft: I would support all your comments there. We can reasonably assume that around half of the 25,000 charities that are claiming less than £1,000 a year in gift aid will be caught up in this matching principle, as I have described. It is really very unfortunate, then, that the smaller local charities, where £600, which may not sound very much to us, could make a real big difference to the work they can do in their communities, will arbitrarily have been set up with a different financial limit for this scheme. It may be the case that they get most of their income, if they are volunteer-led, from bucket collections and fundraising events with tins on the street and so on. It just does not really work for me for those charities to have a different limit under this scheme, and we would strongly support the dropping of the matching principle. We think that would be much fairer for smaller organisations, and would significantly simplify the scheme and make it more understandable.

Helen Donoghue: We take a slightly different view. We understand why the matching principle was introduced, but we would like the ratio changed. We had proposed, perhaps optimistically, 10:1 as opposed to 2:1, but even 3:1 would be more practical for some of the smaller organisations. It has to be said, however, that one or two of the people we have been talking to have argued that it will change their behaviour somewhat, in terms of the way that they try to fundraise. I think that none of us is really able to appreciate fully how it will change  the behaviour of organisations, in the way in which they try to attract donations, and that will be well worth looking at. Some people had argued—we would support this—that the scheme should be reviewed after a period of time, to see whether it needed to be adjusted, and that is one of the provisions that we think might need to be adjusted to encourage a different type of fundraising behaviour, particularly among the smaller organisations.

Q 38

Thanks to everyone for coming along and giving evidence. I wonder if I could ask each of you specifically about community buildings, because there was a lot of concern about the complexity of the scheme as proposed, and the Government have tabled some amendments in relation to that. Could you explain some of the difficulties that organisations would face in relation to the community buildings proposals? Do you believe that the amendments now solve all those issues, or are there still areas in which you would like to see further change made as the Bill proceeds?

Cath Lee: I think that the community buildings proposals will affect some, but not all, of our members. Again, the barrier is around how you get across the concepts. They are very difficult concepts to understand, and even people who have read the legislation and the explanatory notes still struggle to understand how it will work in practice. There would need to be lots of case studies in the guidance very clearly to explain different scenarios.

We got some feedback from our members about gift aid, and about what people think about gift aid as it is—what their impressions of it are. Nearly 50% of them have a problem with it: 23% have a problem with the time it takes to understand the system, and a further 22.9% have a problem with the paperwork. To me, that indicates that there is a huge difficulty there for small charities in understanding it before they can apply it to their situation, and the community buildings proposals are an example of something that will confuse people and, at worst, put them off even bothering.

One of the examples given by a colleague on the panel earlier is a clear indication. He talked about a church service, where there was an Africa project. Who should be claiming the top-up on that, the Africa water project or the church? That Africa water project would probably not know the answer, and would not necessarily be aware that it could claim.

Again, it is the complexity that is the problem. Some of the amendments improve the community buildings situation, and there is a benefit to commercial buildings now being included in a broader sense, but the guidance will need to be crystal clear if it is to not put people off, and will need to have lots of case scenarios so that people can understand how this applies to them.

Charlotte Ravenscroft: I think that the community buildings rules have been developed to try to make the scheme fairer for charities that have a group structure. We very much understand the spirit of that part of the Bill; there are just some concerns about the exact letter of it. When we have spoken to charities, they have described two main issues to us. They have been charities that have that group structure, so it does particularly apply to them.

The first issue is charities the local branches of which are not tied to physical buildings in that way. For example, Victim Support is a national charity that used  to be 77 separate local charities and is now, due to a restructuring, one organisation. It had hoped that the community buildings rules might support its organisation, with all those separate groups, but because its activities do not always take place within a community building, it looks as though the rules will not support it in claiming more than once under the scheme.

The other issue is charities that have specific buildings associated with their groups but will not meet the specific requirement to conduct their fundraising while a charitable activity is taking place. For example, the Royal Life Saving Society has 47 local clubs, and its charitable activities are training people in life-saving skills. It would not receive donations while training someone in life-saving skills. If you pursue that a little further, most charities would not receive donations from their beneficiaries in the process of delivering charitable services. That is particularly the case if you are serving vulnerable individuals or children. I spoke to the Alzheimer’s Society, which is another example of a national organisation with local branches. While it sometimes raises funds within its building in a way that could be during its charitable activities, it is not always. It often receives small cash donations while doing other fundraising activity locally. The complexity of the community buildings rules means that it might not be clear which of these charities or group structures can benefit from them, and in what circumstances the donations need to be made.

Q 39

May I pursue that slightly? You raised questions to do with the letter of the Bill. Of course, that is very important; it is exactly what we have to scrutinise. I am trying to tease out whether there are further things in the Bill that you would like to see amended. Are you content that everything could be dealt with by guidance, or would that simply be too complicated?

Charlotte Ravenscroft: Where the Government amendment has come in to clarify the community buildings rule further, it specifically limits donations to participants in a charitable activity, and says that the donation must be made while a charity activity is taking place. From our point of view, while that amendment is helpful for a church congregation, it does not suit the way that charities operate. We would prefer to see an amendment that specified that the small donation is applied to the charitable purposes of that local group. That would be a much better solution for many of our charities that would be caught up in this.

The only other area where we suggest that the community buildings rules could be improved is in relation to residential buildings. We know that certain types of charities—for example, hospices—might consider their community building to be a residential facility. We know that those sorts of organisations may have concerns about that restriction. We are glad that the Government amendments make changes to do with commercial and mixed-use property. We think those are helpful.

Helen Donoghue: Going back to the first point about community buildings generally, in a way we were glad that the provision was introduced to help those charities for which it was needed—the people with similar aims and objectives, but very different structures. It would have been a serious flaw if that had not been there. It is  important to get it right, but also important to recognise why it was there in the first place, and there is an understanding in the sector about that.

We have talked a lot about complexity. One of the things that it is worth putting on the record is that we have an undertaking from HMRC that it will work closely with different organisations in the sector to provide detailed guidance to help organisations to use the scheme as effectively as possible. We want to make sure that happens, and we hope that it will be carried through, and that sufficient resources will be available for that.

The Government amendments appear to deal with a lot of the concerns that were raised about the community buildings provision. Like Charlotte, we still have some concern that Government amendments 4 to 6 seem to have the effect that small donations collected in community buildings do not count towards the community building amount, unless they were collected from persons with whom the charity is carrying out a charitable activity. That seems to imply that charity is something done by one group of people to another group of people. Something does not quite feel right there. We have not had a long time to look at this, but somehow we want to take that away and have a further think about it.

Q 40

Charlotte, you gave us some very helpful figures on the charities that will be affected by the three-year track record and the matching rule. Have any of you done any estimation of charities that will be affected because they simply will not be in existence for three years? I am thinking about groups that I am involved with, where communities have come together to raise money largely from small donations for a specific project, and they will be done and dusted and finished in three years. Even though they qualified for gift aid, they will never qualify for this funding. Have you any idea how many of those kinds of groups there will be?

Charlotte Ravenscroft: I am sorry, but I do not have numbers on that. I am happy to take a look at it and write further if there is more information available.

Q 41

Can you guess how many charities there are that complete their work within three years and then disband?

Charlotte Ravenscroft: I do not have personal knowledge of that; I am sorry.

Cath Lee: We take a lot of inquiries from people who are looking to start up a charity, and we take around 15 a month of those. Some of those will not be in existence in three years because they just will not make it through the course of what they need to do, and will not be able to raise enough money to continue. Some of those would wrap up, such as a fund that is set up in memoriam. That comes up quite frequently. I think it is very difficult, however, to get data on that. There is an issue about granularity and the data available for the very small end of the sector anyway. It is very difficult to drill down and find that.

Helen Donoghue: But you did say that some of those organisations might be able to take advantage of gift aid. An important point that we must not forget in all this is that charities can take advantage of the gift aid scheme, and everybody wants to encourage them to do so as early as possible in their existence.

Q 42

Just on that point, one type of local charity that we see a lot is the type that is raising money for health treatment for a child, or for certain medical adaptations. That is a situation where everyone has huge sympathy and they raise a lot of money quickly through bucket shaking, but it would be completely out of this system, because the child will presumably have had the treatment, one way or another, within those three years. That is a further example. My question is on whether we are in danger of double-regulating here. We seem to want HMRC to quality control charities and check that they are real, substantial and not fraudulent, but do we not have Charity Commission registration and requirements to do exactly the same thing?

Helen Donoghue: I would not say that they do exactly the same thing. HMRC is looking after the tax reliefs, and the Charity Commission is looking at the objectives of the organisation and ensuring that it fulfils its other registration requirements. In so far as it would be possible, and if funds were available, everybody would like all the computer systems of the Charity Commission, HMRC, OSCR and so on to talk to each other, so that there was not a necessity to fill in two lots of forms. I think that it would be dangerous to start upsetting the apple cart at this stage, and to try to change any arrangements when people are already working hard to ensure that they understand them. I think a lot of it goes back to straightforward guidance. To go back to your point about appeals for individual children, how many of those get as far as being registered as charities in the first place? They would not be in a position to take advantage of any of the tax reliefs, and may never become actual charities in the first place.

Cath Lee: Many of our members are not big enough to be registered with the Charity Commission. They are under that £5,000 threshold, yet they are considered by HMRC to be charities for tax purposes. There is an additional piece of paper—an additional task—for charities to become recognised as charities for tax purposes, which is slightly different from when they are setting up their small charity. When they are doing that, there is a small charity constitution that is not detailed enough for HMRC’s purposes, in terms of describing the public benefit and their charitable objects.

For some small charities that could benefit from gift aid at an early stage, it depends where they go first—whether they go to the Charity Commission for their guidance or start with HMRC—as to whether they have to do that additional paperwork in order to be able to claim gift aid and be eligible for this scheme.

Q 43

Clearly, there is concern on all sides to prevent fraud in the charity sector and, given the debate that took place after the Budget around the charity tax cap, there is certainly concern in some quarters about levels of fraud in the charity sector. Can you give us a sense of your estimates of the level of fraud in the sector, particularly among those charities that do not claim gift aid?

Cath Lee: I did know these; I have not brought them with me.

Charlotte Ravenscroft: We do not have specific figures for the level of fraud, but we recognise that the Government want to link the small donation scheme to gift aid partly as a fraud prevention measure. We agree that it is in all  our interests to be vigilant and prevent fraud—it is as much in the charity sector’s interest as it is in the public taxpayers’ interest—so we strongly support work to prevent fraud. For this scheme, we think that the registration for gift aid, where charities go through those checks, is the most important measure. NCVO does a lot of work to support HMRC in the prevention of fraud, and has recently set up a new group looking particularly at charity fraud. It is something we would always be concerned about, but it is about a balance in some of the rules in this scheme. We feel that the protection built into the gift aid scheme is sufficient not to require some of these additional rules and complications.

Q 44

Sure. I am not querying your commitment to anti-fraud measures; I am just trying to think through the variety of ways in which government, in all its forms, gets money to small charities. Presumably there are a variety of ways in which one prevents fraud, but the specific linkage to gift aid suggests that HMRC has concerns about the level of fraud within the sector. Is that a concern that you have heard or that you share?

Charlotte Ravenscroft: We have asked HMRC a number of times about the particular level of fraud that it is concerned about, but for the understandable reason that it deals with particular circumstances, it does not release that information about the level of fraud, so I do not have those figures.

Helen Donoghue: It is worth asking the Treasury rather than us, because, as Charlotte says, we are not privy to what it is aware of.

I just want to clarify something. Maybe I misunderstood, but if a charity registers for gift aid, can it start to claim gift aid right away? If so, why is there this additional barrier of having had to claim the gift aid for three years in order to get into the small donation scheme? It is a double barrier. Am I right in thinking that once you have registered yourself for gift aid, you can start to claim it right away and that it might be quite large amounts?

Helen Donoghue: Our understanding is that this is an additional facility that does not have quite as many restrictions around it, because you are not seeing where the money has come from, you have not got the name and address of the donor, you have not got the checks that are available through gift aid. The reason for the delay is that HMRC wanted to ensure that a charity was operating gift aid successfully and had got good systems in place before it could take advantage of this scheme. We understand that there is concern about trying to set up and suddenly take advantage of a scheme where you have not got much information about where the money has come from and you could suddenly say, “We have raised this amount of money.” That is why we would like a sliding scale, so that you could have a smaller amount claimed in year one and year two and then the full amount in year three. That is just to be able to satisfy concerns about the fact that there is not as much information available.

The amounts involved here are relatively low. Would that not in itself give some protection to the Treasury?

Helen Donoghue: We would say that, yes. That is why our proposal for having a smaller amount able to be claimed in year one would give that additional protection. There comes a point where it is not actually worth  setting up a charity to claim that sort of money. Having said that, again, it is worth putting that question to HMRC, because it is obviously concerned that people are prepared to go to extraordinary lengths to defraud the tax system. The balance has to be struck. We think that the balance could be adjusted a little more in favour of the charity.

You indicated earlier that there was some suggestion that there may be a behavioural change or reorientation on the part of some charities. In terms of some locally-based charities with a more international outlook that I am aware of, some have a relationship with each other where one is a bigger charity and tends to have an emphasis on gift aid. Others work very much in connection with schools and youth groups in particular, to generate funding through them, and have no reliance on gift aid. They are quite happy to relate to each other in profile; they do not bump into each other or crowd each other’s fundraising calendar. They complement each other in that way. There is concern that this Bill means that the second, smaller charity, which concentrates more on what can be done through schoolchildren and events, will have to start using gift aid as well. It is not where they have been until now, but it is where they have to go.

Cath Lee: Not all organisations raise their money in a way that is gift aidable and that does not necessarily need to change. This is about those organisations that could benefit from gift aid being able to access the scheme through the qualification criteria, so that there can be a greater benefit. It is not necessary to force everybody into forms of fundraising that do not suit the complexity of what they deliver or the scope of how they operate. It has not been taken up enough: there are 64,000 charities out of 164,000 registered charities, plus all the under-the-radar organisations that are not taking up gift aid already. Gift aid is the tip of the iceberg; much more could be done and there could be greater benefit for small charities. It is not suitable for everybody, and it is not possible for a scheme of this scope to meet everybody’s needs. However, it could meet more needs of more charities.

Helen, you have mentioned the possibility of a review period in terms of some of the questions out there about the Bill. If there were to be a review clause in the Bill, what do you think would be a reasonable time line for that review? Are there are any particular aspects that you think should be specifically included in that review?

Helen Donoghue: We had originally talked about three years as a good point—three or five years, but probably three—and matching, without a doubt. There should be a sliding scale of trying to get people when they can take advantage of it. These are the two things that we would want. We would also want to ensure that the community buildings and the connected persons rules are not causing any particular problems. We just do not know yet. As I said before, we have to look at the Government amendments to ensure that they do not cause any particular problems that we have not yet envisaged. I would say that three years is a good starting point.

Charlotte Ravenscroft: While a review would certainly be helpful, to see how the scheme is going, the opportunity here is obviously to make some amendments that fix  some specific issues so that the scheme operates in the way that everyone hopes that it will. So, on the matching and three-year rules, if you can consider some of the suggestions that we have made, it will be possible to address things now rather than waiting for the three-year review.

Q 45

Moving on to the fraud point, I am interested that you seem to think, from your evidence, that the balance is too much in favour of the detection of potential fraud rather than in assisting small charities in some cases. No doubt, at some point, as with every scheme known to humanity, there will be some story somewhere about some bloke in a back bedroom who has bought a motorbike on the basis of the scheme; we will have three days when we all get excited about that and then, rather than pursuing the obvious route of prosecuting the chap who has got the motorbike, we might look at this as a disproportionate problem. An analogy that I am interested in is the Awards for All scheme, under which I think—correct me if I am wrong—grants of up to about £10,000 are awarded, and I do not think that you even have to be a registered charity but only a community group. If the lottery is prepared to think that that is valid and acceptable, with certain checks, I am wondering whether it is fair to say that things might be a bit disproportionate as they stand in terms of the fraud aspect.

Charlotte Ravenscroft: I used to work at the Big Lottery Fund so I am very familiar with the Awards for All scheme. You are right that there the assessment is that, given that these are small grants, it has a proportionate approach to assessing risk, and it allows groups to apply for them. Obviously, it has its application process, which in this case the registration for HMRC tax purposes is the equivalent of, but I agree that the few bad apples that you will get in any scheme should not mean that the rules overall on the face of the Bill are so disproportionately restrictive that those other tens of thousands of small charities that would really benefit from this scheme will struggle to access it. I think that that kind of complexity and the fairness balance need to be readjusted.

Q 46

The definition of a small donation is £20 in cash. Do you think that it should be as limited as that? Should it be higher or lower? What is your view on the method of the donation included in the schedule?

Cath Lee: In terms of the level, I think again that the guidance will be crucial, because small charities will worry about that and they will need to be confident that they are getting it right. Some of the reasons that people do not take up gift aid and do not engage in initiatives that could benefit them are for fear of getting it wrong. So the person I spoke to yesterday said, “Partly we don’t do it because if we get it wrong we will be considered fraudulent.” There is that perception there and, having taken part in some of the earlier consultations, that specific issue was raised. There was a lot of discussion about whether it was a £10 note, or a £20 note put into collection tins and £10 given back as change—people will spend a disproportionate amount of time worrying about the denomination. However, the scheme is set up for cash donations and small donations, and if you start getting to larger denominations it becomes something different, so a line has to be drawn somewhere. The guidance needs to be simple  and, for me, that is a lesser issue than perhaps the benefits that could be gained by amending some of these other major barriers—the flexibility around the three years and the matching.

Q 47

So you do not think that cheques or donations by text message should be included?

Cath Lee: I think greater benefit could be gained from amending the key barriers: the matching and the three years. Cheques are a valid way of giving money, and many charities receive anonymous donations on which it would not be possible to claim gift aid. I would be cautious about introducing yet more complexity into a scheme that is over-complex. That is not to say that, if there were a review in the future, that should not be considered. For me, the key things are the matching and the three years. If they were more flexible, they would benefit more small charities.

Helen Donoghue: We think that £20 somehow feels about right. Yes, cheques would be helpful in some circumstances, but the counter-argument is that if someone is bothering to fill in a cheque, could they not be persuaded to fill in the gift aid form?

Charlotte Ravenscroft: I think you are right that the line needs to be drawn somewhere, so we understand why they have chosen that £20 figure, which fits the denomination of £20 notes. Maybe one thing for a review to look at is future-proofing the scheme. We know people maybe do donate more now by web and text, and whatever the next technology will be, as well as through cheques. So non-cash small donations might be something to consider, but, as my colleagues have said, that is not as significant an issue in our view as the three-year track record and the matching rules.

Q 48

This is a very quick question. You might not have an answer, but I want to go back to the community building rule, which sought to address an unfairness. HMRC picked a solution that was nice and straightforward for itself, but, given that that unfairness arises from how something is constituted, do you have any other suggestions for criteria the HMRC could have used?

Helen Donoghue: Not with the problem they were trying to resolve initially, no.

Charlotte Ravenscroft: I know the Big Lottery Fund is able to consider separate branches of larger organisations in some of its application processes, but because an automated system is running this scheme I can understand why it is helpful to have a specific discrete community building. The issue is with how donations are expected to be made in the context of that building. We have a problem with donations being made while a charitable activity is taking place. It is the “while” that is the problem, which is why we think that participants in the charitable activity will not necessarily make donations to charity. In many cases, the donor group will be separate from the beneficiary group.

Q 49

I have a small question arising from cash donations and the issue of denomination. Where I live, which is right on the Irish border, many donations received by local charities, and even local churches under planned giving, are often in euros, because it is an area where people are using euros to go over the  border to buy petrol, and so on, and many people’s dealings are on a cross-border basis. If denominations are a question, is currency potentially a question in the border areas of Ireland?

Helen Donoghue: It might well be. It is also the case that in collection boxes in museums and churches, you often see foreign currency. So, yes, it would be nice if they could be included, too. I do not think that is going to be practical, though.

I thank you on behalf of the Committee for coming. Thanks very much.