Ross Palmer September 2016 Gift Aid update

1.Gift Aid statistics 2.Donor benefits 3.Gift Aid declarations 4.Retail Gift Aid Scheme 5.Gift Aid Small Donations Scheme 6.Scottish Rate of Income Tax Gift Aid developments 2

Gift Aid claims rose to £1.26bn in 15/16 (£1.19bn in 14/15, an increase of 6%) So a total of £5.04bn gift aid donations claimed for in 15/16 (£1.26bn / 25%) 1 Gift Aid statistics 3

Claims for higher rate relief rose from £0.46bn to £0.48bn (4%) So higher rate donations are approximately £1.92bn, roughly 38% of all Gift Aided donations, assuming all higher rate donors claim higher rate relief 1 Gift Aid statistics 4

Purchase of marathon places (e.g. gold bonds) London Theatres Patron Scheme agreement Donor benefits review Giving by social media 2 Donor benefits 5

HMRC clarification that for gift aid benefit purposes a place is valued at the normal entry fee for a runner, not the gold bond price But if the runner must personally pay a deposit or entry fee to the charity to get the bond, that reduces the benefit value So if set entry fee at the normal runner entry fee, it will wipe out the benefit so donations from connected persons can be gift aided 2 Donor benefits: Gold bonds 6

Many theatres and arts organisations operate ‘patron schemes’ Package of benefits designed to fit within donor benefit or split payment rules E.g. priority booking, discounts, invites to previews and opening nights, information about forthcoming events, guided tours etc. 2 Donor benefits: London Theatres 7

In Feb 2016 a group of London theatres reached agreement with HMRC on how to value theatre patron scheme benefits, how to market them and how to resolve any uncertainties with HMRC Potentially useful to any charity providing gift aided supporter packages See Sayer Vincent website for details of the agreement 2 Donor benefits: London Theatres 8

HM Treasury issued a call for evidence on the donor benefit rules in 2015 Concerns that over-complicated and mis- understood In Feb 2016 HMT issued a consultation on proposals for simplification of the rules Consultation on final proposals likely in autumn 2016 for implementation from April 2017 or April Donor benefits review 9

Proposal 1: Removing the monetary thresholds altogether Charity only claims gift aid on the net amount of a donation, after deducting the cost of providing the benefits All benefits would be valued at cost to the charity So no benefit value for intangible benefits such as priority booking or discounts 2 Donor benefits review 10

Proposal 2: Removing the monetary thresholds altogether Charity uses the split payment approach for all benefits, so only claims the net donation, but benefits valued at market value rather than at cost i.e. roughly he current approach to benefit valuation 2 Donor benefits review 11

Proposal 3: Reduce the number of benefit value rates and thresholds e.g. a single cap of 10% upto an annual limit of £2,500 So charities with low value donations might lose out (current benefit cap is 25% for donations upto £100) Charities with high value donations might gain (current benefit cap for donations over £1,000 is 5%) 2 Donor benefits review 12

Proposal 4: Disregard for low value benefits Proposal 5: Legislate split payments, averaging, and literature concessions Proposal 6: Remove the concession for lifetime benefits (valued as benefit over first 10 years) Proposals 4, 5 and 6 could, individually or in combination, supplement proposal 1, 2 or 3 to create a package of reforms 2 Donor benefits review 13

Proposal 4 A low value disregard would enable Gift Aid to be claimed on the gross value of an eligible donation as long as the total benefits provided to the donor in consequence of that donation did not exceed a certain monetary threshold – e.g. £3 Could be any type of benefit Cap could apply per donation or per year Not clear what happens if donation less than £3 2 Donor benefit review 14

Proposal 5 implement in law: split payment rule: if the charity can establish a benefit’s market value and sold separately and offered to the general public, the charity can claim Gift Aid on the net donation Averaging method: can average the cost of a benefit over a number of donors Literature that describes the work or objectives of the charity is assigned a nil value 2 Donor benefit review 15

Proposal 6 Lifetime membership Responses to the Call for Evidence suggested that charities do not use the lifetime benefits rule so the proposal is to abolish in the name of simplification 2 Donor benefit review 16

For all proposals: Would retain the current disregards for rights of admission to view charity property 2 Donor benefit review 17

To Gift Aid a donation the donor must Gift Aid their own money Donors cannot Gift Aid collections from family and friends (unless family and friends also provide Gift Aid declarations) HMRC concerned that some donations via social media were collections from family and friends 2 Giving by social media 18

HMRC has now agreed a pre-donation questionnaire for social media websites to check Gift Aided donations are from the donor and not collections from other people But can Gift Aid collections via the sponsorship type approach – collect gift aid declarations from each donor 2 Giving by social media 19

Revised model declarations Partnership declarations Donor intermediaries 3 Gift Aid declarations (‘GADs’) 20

On 21 October 2015 HMRC updated its model declarations, for implementation from 6 April 2016 Three models: Single declaration Enduring declaration Sponsorship declaration 3 Model Gift Aid declaration 21

Boost your donation by 25p of Gift Aid for every £1 you donate. Gift Aid is reclaimed by the charity from the tax you pay for the current tax year. Your address is needed to identify you as a current UK taxpayer. In order to Gift Aid this donation you must tick the box below: □ I want to Gift Aid my donation of £…………………………….. to (Name of charity). I am a UK taxpayer and understand that if I pay less income tax in the current tax year than the amount of Gift Aid claimed on my donations it is my responsibility to pay any difference. Title/First name or initials/Surname/Full Home Address/Postcode/Date 3 Model enduring declaration pt. 1 22

Please notify the charity if you: want to cancel this declaration; change your name or home address; or no longer pay sufficient tax on your income and/or capital gains. If you pay Income Tax at the higher or additional rate and want to receive the additional tax relief due to you, you must include all your Gift Aid donations on your Self-Assessment tax return or ask HM Revenue and Customs to adjust your tax code. 3 Model enduring declaration pt. 2 23

In Jan 2016 HMRC announced that charities and CASCs holding stocks of printed materials that were ordered and printed before the new declaration was amended (21 October 2015), can use up their current stock before using the new declaration 3 New model declarations 24

Partnerships and LLPs are treated as transparent for Income Tax purposes The partnership’s profit is the profit of each partner as apportioned under the partnership agreement Previously HMRC accepted one partner could sign a Gift Aid declaration on behalf of all partners (and use the partnership address) 3 Partnership declarations 25

HMRC now consider this to be wrong From June 2015 to 5 April 2016 HMRC accepted one partner could sign a single declaration for all partners provided it lists each partner’s name and home address From 6 April 2016 each partner must complete their own declaration But see Gift Aid Intermediaries below for a possible solution for large partnerships 3 Partnership declarations 26

Complains from commercial websites such as Justgiving that burdensome to get declarations for each charity that a donor donates to via the website In response the govt. is proposing to enable a ‘donor intermediary’ to issue a GAD to a charity or CASC 3 Gift Aid intermediaries 27

Donors will authorise a donor intermediary to issue GADs on their behalf Donor authorisations last to the next 5 April (or to the following 5 April if made on or after 1 March) and then have to be renewed Donor intermediaries will have to notify donors of amounts Gift Aided annually, keep records of authorisations, notifications and GADs issued Penalties for failure to comply by intermediaries 3 Gift Aid intermediaries 28

If implemented will mean charities may receive declarations from donors and from donor intermediaries Should contain the same information Changes likely from 6 April Gift Aid intermediaries 29

HMRC made substantial changes to the scheme on 30 October 2015: New template RGAS letters. These were revised in October 2015 and again in April 2016 – make sure you use the latest versions Compulsory end of year letters for methods A or B. Previously method A or B donors had to be able to opt to receive end of year letters 4 RGAS changes 30

Post or Donor letters can be sent by However if an address is rejected or invalid the notification must be sent by post 4 RGAS changes 31

Time limits Method A or B end of year letters must be sent by 31 May Any adjustments required as a result of the donor notifying of a change in tax status or other details must be actioned by the charity within 2 months 4 RGAS changes 32

Prohibition of incentive schemes HMRC will not accept Gift Aid claims if inappropriate incentive or bonus schemes are operated, for example: using targets for Gift Aid take up publishing league tables of shops giving bonuses, incentives, or otherwise rewarding increased Gift Aid claims from individual shops 4 RGAS changes 33

Shop procedures All shop staff involved in RGAS must undergo training to understand the importance of following the correct procedures and to explain the scheme correctly to donors In addition charities must undertake regular audits on a periodic or sample basis, as appropriate, to ensure the processes are being followed correctly 4 RGAS changes 34

Labels and notices Charity shops must allocate a unique ID to each donor and use this on price labels Shop customers must be made aware that the goods are being sold as agent for others under RGAS by for example putting up an explanatory notice and using differently coloured labels 4 RGAS changes 35

Unpaid tax HMRC no longer requires users of RGAS methods A and B to accept liability if the donor has paid insufficient tax to cover the gift aid claimed nor will HMRC restrict future claims for this HMRC will ask the charity if they wish to refund the gift aid first, but if not HMRC will pursue the donor for any unpaid tax 4 RGAS changes 36

Rate of seller’s commission HMRC expects a VAT standard-rated seller’s commission to be charged to the donor in order to make the operation of RGAS a business activity for VAT (and to thus obtain VAT recovery on the costs of operating RGAS) HMRC say the rate of commission must be set to reflect the ‘real costs’ of operating RGAS 4 RGAS changes 37

5 Gift Aid Small Donations Scheme Uptake of GASDS has been low, so government proposals to open up to more claims: Allow small donations via contactless credit or debit card No history of good gift aid claims required Can claim either under overall rule or community buildings rule but not both Small donations collected in the same local authority area as a qualifying community building can be claimed 38

A ‘Scottish Rate’ applies from April 2016 The standard-rate, higher rate and additional rates of Income Tax are reduced by 10% for ‘Scottish taxpayers’ The ‘Scottish Rate’ is then added to all three The Scottish Rate is 10% for 16/17 So Income Tax rates for Scottish taxpayers will be the same as the rest of the UK for 16/17 (20%, 40%, 45%) 6 Scottish rates of Income Tax 39

A Scottish taxpayer is (broadly) a UK taxpayer who: has their only or main place of residence in Scotland, or Who lives for most of the year in Scotland HMRC is identifying Scottish taxpayers and allocating them tax codes prefixed ‘S’ 6 Scottish rates of Income Tax 40

From 17/18 the Scottish Parliament will be able to set the Income Tax rates and band thresholds (excluding the personal allowance) for non-dividend, non-savings income The Scottish govt currently proposes to depart from the rest of bands in 17/18 6 Scottish rates of Income Tax 41

6 Scottish Rate of Income Tax 42 Gift Aid is in principle a refund of the basic rate tax paid on the donation by the donor Gift Aid = Donation x (Basic Rate %) / (100% – Basic Rate %) So if donor is a Scottish taxpayer could have more or less Gift Aid to claim Basic rateGift Aid on £100 donation 19%£ %£ %£ %£28.21

But a charity would need to know if the donor was a Scottish taxpayer and if that changed Govt. agrees this would be disproportionate So all UK charities will carry on claiming Gift Aid at the rest of the UK rate of Income Tax for all donors If UK basic rate is 20%, Gift Aid reclaim will remain at 25% of donation amount for all UK donors 6 Scottish Rate of Income Tax 43

Scottish higher rate taxpayer. if e.g. basic and higher Scottish rates are 21% and 46%, a Scottish higher rate taxpayer claims tax relief for a £100 donation as: Donation £100 Gift Aid claimable by charity £25 Gross £125 Claim: (46% - 21%) x £125 = £ Scottish Rate of Income Tax 44

Publications Sayer Vincent contact details 45