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New Clause 3 - Complementary Gift Aid for small donations to small charities

Part of Small Charitable Donations Bill – in a Public Bill Committee at 4:45 pm on 30th October 2012.

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Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury 4:45 pm, 30th October 2012

I am grateful to the hon. Member for Foyle for tabling the new clause for debate. Throughout this debate and the others we have had, he has made excellent, thoughtful and very well intentioned contributions. The new clause is another creative attempt at an alternative way for certain charities to become eligible for this scheme, as I will go on to explain. In fact, it would create a new scheme altogether—a separate scheme for those charities not using gift aid and therefore not eligible for the small donations scheme. There are a number of problems with the hon. Gentleman’s proposal. First, I shall remind hon. Members why the link to gift aid exists. As we have said from the outset, this scheme complements the current gift aid system. It is a top-up system, as opposed to a tax relief system. As we have discussed a number of times, because the gift aid system requires declarations and information from people making donations, there is an audit trail that can be followed if HMRC needs to, so it comes with added protections—the fit and proper person test and so on. Under the Bill, we have a cash-based system. There are a lot of reasons for doing that, which we all agree on, but unfortunately they would open the scheme up to fraud if we did not have adequate safeguards. I will not run through all the safeguards that the link with gift aid provides again, but we have discussed why they are important. It is safe to say that without the safeguards, the level of risk to the public purse would be simply unacceptable.

The new clause suggests that for small or new charities, HMRC could gather information from other agencies to check that they are honest. That suggests a significant administrative burden on HMRC to verify each and every charity that applied through this route. Without strict eligibility criteria, HMRC would be required to make very subjective judgments about whether a charity is in or out of the scheme. It would mean that the Department would be constantly at the risk of legal challenge to the decisions it made.

Let us think about the case of a new charity starting up. It is small, and so is not required to register with the Charity Commission for England and Wales. It has just been set up so, until it has raised some money it cannot spend any, so there will be no record of its spending money for charitable purposes—or not, for that matter. How is HMRC supposed to be able to tell whether it is honest or not? What documentation could it rely on to tell it that the people behind the charity could administer a cash-based scheme correctly? That is why we have made a link to gift aid that helps HMRC to see how the charity operates and gives it a good guide to the charity’s likely compliance with the scheme.

That brings me to my next concern, which is about the boundaries regarding which charities are in or out of the new scheme. The hon. Gentleman has not specified what the definition of “smaller” or “newly established” charities would actually be. That prompts the question of how charities are going to know which scheme they are supposed to be using. It would require more subjective judgment by HMRC to decide who was in and who was out, and that creates more of a risk of legal challenge.

I appreciate that the new clause is well intentioned and encourages us to have a useful debate. I understand the hon. Gentleman’s concerns about charities that will not immediately be eligible for the small donation scheme, because they do not have a track record of gift aid claims. However, it is in charities’ interests to start using gift aid where they can, and we should be trying our best to encourage them to do so. It is not capped for each charity in the same way as this scheme, so charities can claim tax relief on all donations they get from gift aid declaration. For straightforward donations of money with no benefits attached, gift aid is a simple scheme to operate, and with the new IT system coming in next year it will be even easier for charities to claim.

I thank the hon. Gentleman for his new clause and the debate he has encouraged, but I kindly ask him to withdraw it.