Small Charitable Donations Bill
Memorandum Submitted by Hospital Broadcasting Association (HBA) (SCD 03)
About the HBA
HBA is a membership organisation, registered as a charity with the Charity Commission. It supports and promotes hospital broadcasting within the UK. Our members are independent hospital broadcasting organisations providing services to patients in their local hospitals and old people’s homes. Most of our members are registered charities, although some are unregistered. We currently have 225 members.
The majority of our members have an annual income below £10,000 per annum. Many have an income well below that figure. To the best of our knowledge, all of our members are reliant entirely on volunteers, with no paid staff.
Summary of evidence
· In general HBA welcomes the Bill; it should benefit many hospital radio stations and other small, local charities.
· However, HBA is concerned that the counter-fraud measures included in the Bill will result in only a minority of small charities being able to benefit.
· Linking claims under the Small Donations Scheme to Gift Aid claims is the problem; most of HBA's members either claim nothing or very little via Gift Aid, because they don’t raise the majority of their funds in a way that is eligible for Gift Aid.
· A survey of HBA members indicates that 70% would have been ineligible to claim if the Small Donations Scheme had been running last year and, in total, only 27% of small charitable donations to members would have been eligible for a claim.
· Eligibility should be linked, instead, to a good history of compliance with obligations under charity law, and HMRC's "fit and proper person" test.
· The inclusion of Clause 12 regarding reorganisations of charities is welcome, but it should be extended to cover other forms of reorganisations, such as mergers.
· All small donations, whether in cash or not, should be eligible for claims.
HBA welcomes the Bill, but has concerns about the eligibility criteria
1. In general, HBA welcomes the Bill. Being small, local charities, the members of HBA would appear to be typical of the sort of charity that the Bill is intended to benefit. The Bill should, if implemented correctly, provide a welcome boost to our members' fundraising efforts during these difficult times.
2. Fundraising events such as "tin shakes", bucket collections, etc., resulting in many relatively small donations, are popular funding streams for our members, but the collection of donors' details to support a Gift Aid claim at such events is impractical or inappropriate.
3. HBA is concerned, however, that the counter-fraud measures that HMRC is proposing are disproportionate, and will result in only a minority of our members (and, by analogy, other small, local charities) from being eligible to make claims under the scheme. Analysis of the results of a survey of our members indicates that over 40% are not currently registered for Gift Aid and, of those that are, almost half did not make a Gift Aid claim in the last financial year. In summary, if this new Small Donations Scheme had been running last year, 70% of our members would not have been eligible to submit a claim.
4. Add in the restriction that claims made under the scheme are limited to twice the amount claimed under Gift Aid and only 27% of small charitable donations to our members last year would have been eligible for a claim under this Bill.
5. Whilst the respondents to the survey make up only a very small proportion of the overall charity sector, they represent a good cross-section of our membership. If these figures are in any way representative of the situation across the wider small charity sector, a huge amount of small donations to such charities would fall foul of the restrictions currently in this Bill.
Comments on individual clauses
6. HBA objects to the "matching" requirement in the Bill, which restricts eligible claims to a maximum of twice that claimed in the same financial year under the Gift Aid scheme. HBA is concerned that this will severely reduce the number of our members (and other small charities) that are eligible to claim.
7. Many of our members do not receive sufficient donations that are eligible for Gift Aid to justify the administrative burden of registering under the Gift Aid scheme and making claims on a regular basis – these are small charities that, in many cases, rely almost entirely on fundraising events such as "tin shakes" in the town centre or at the local supermarket for the funding of their day-to-day activities. Under the proposed eligibility rules, these charities will be discriminated against simply because they do not conform to what HMRC considers to be "the norm" when it comes to charity fundraising.
8. In the survey of our members, of those that are registered for Gift Aid, or have considered registering, the reason stated most often (by a long way) for not claiming (or not registering to claim) is that the administrative burden of doing so far outweighs the monetary value of any Gift Aid reclaim that they would receive. Those that do make Gift Aid reclaims on average claim only around £160 per year.
9. Our survey suggests that our members would claim, on average, less that £500 under the Small Donations Scheme even if there was no matching requirement. Given the relatively small amounts of money involved, HBA feels that the restrictions imposed for counter-fraud reasons are disproportionate and will simply rule ineligible the vast majority of our members. As stated above, our survey suggests 70% of our members would be ineligible to claim, and only 27% of small charitable donations to our members would be eligible under the scheme as set out in the Bill today.
10. HMRC make Gift Aid repayments totalling approximately £1bn per annum, and detect around £10m per annum of fraudulent claims (figure from answer to FOI request submitted by HBA July 2012) – a rate of fraud of around 1%. HMRC estimate that £60m will be paid to charities under the Small Donations Scheme in 2013/14, raising to £125m in 2016/17 (figures from Impact Assessment). HMRC are concerned that the level of fraud against the Small Donations Scheme will be significantly higher than that against Gift Aid. Even if the level of fraud was five times as high as is the case of Gift Aid (5%), the amount fraudulently obtained would only be £3m (2013/14) to £6m (2016/17). Whilst any level of fraud must be taken seriously, the figures need to be compared against the amount of tax lost elsewhere, and against the amount of legitimate claims that are ruled ineligible by these counter-fraud rules.
11. If one of our members ran a fundraising event which raised £100, but £5 went astray, it would only be right for it to investigate its financial controls, but it's hardly going to tie itself up in red tape, in an effort to ensure the £5 is not "lost" again, such that the next event only brings in £27. If it were only £1 that went astray, one of the Trustees would probably just throw a coin into the pot on the basis that it isn't worth worrying about. HMRC needs to apply a similar mindset when considering the impact of the counter-fraud measures that it proposing are included in this Bill.
12. HMRC's own statistics on the "tax gap" ("Measuring Tax Gaps 2011") provide an interesting comparison. Overall, in 2009/10 (the last year for which figures are available), the estimated difference between tax due and that collected was £35bn, or 8% of total tax revenue. For small and medium enterprises, in 2006 the estimated shortfall in corporation tax payments was £1.4bn, or 10% of estimated liabilities. Overall therefore, the charity sector, as one might expect, does not appear to be a high-risk area when it comes to tax fraud or evasion.
13. If HBA's survey results are in any way representative, 73% of small charitable donations would be ineligible for a claim under the proposed scheme. When you take into account the absolute monetary amounts that we are talking about here, and the impact those amounts of money would have respectively on HM Government and on small charities, the impact of the imposition of these counter-fraud measures seems grossly disproportionate.
14. HBA objects to the eligibility criteria that require a charity to have made a Gift Aid claim in the last three years, and at least 3 claims in the last 7 years. HBA believes that these criteria unfairly penalise both newly-formed charities and those which, because of the nature of donations that are eligible for Gift Aid, have been unable to make Gift Aid claims. HMRC states that the Small Donations Scheme being introduced by this Bill is supposed to be seen as distinct from "traditional" Gift Aid, but then goes on to seemingly link the two schemes as if they form a continuum of reclaim mechanisms. Furthermore, in the Impact Assessment, the success criteria are based on the percentage uptake of the scheme by charities already claiming Gift Aid, rather than on the percentage of all charities.
15. Just because a small charity does not make Gift Aid claims does not mean that its claims under the Small Donations Scheme should be considered illegitimate. HMRC's approach of doing just this is discriminatory and disproportionate; see HBA's comments about Clause 1(4) above for detailed statistics. Even if the additional amount claimable under the Small Donations Scheme now makes it worth the administrative burden on our members to register with HMRC, and if there were no matching criteria as proposed in Clause 1(4), they would not be able to claim for 3 more years, despite being in existence for decades and complying fully with all the applicable requirements of charity law.
16. Most of HBA's member charities are registered with the Charity Commission for England and Wales, or OSCR, and thus are already subject to a degree of external scrutiny. In the case of all Scottish charities, and those English and Welsh charities with an income in excess of £25,000, annual accounts must be prepared, independently examined and submitted to the regulator. In fact the governing documents of most our members in England and Wales require external examination of the accounts irrespective of the level of income, as this is seen as best practice.
17. If there were appropriate joined-up working between the charity regulators and HMRC, as proposed by Lord Hodgson in his recent review of the Charities Act 2006, it would be possible for HMRC to use the compliance record of charities with the reporting requirements of charity law, along with its "fit and proper person" checks, perhaps together with a random sampling of annual accounts to assess the legitimacy of claims under the Small Donations Scheme.
18. HBA suggests that the linking of eligibility to claim under the Small Donations Scheme to claims under the Gift Aid scheme be replaced by a requirement based on compliance with existing charity reporting and accounting requirements. Where accounts are already submitted to the charity regulator, HMRC should be able to obtain copies from that regulator to enable any necessary counter-fraud checks to be performed without further burdening the charities. Where the accounts are not submitted to the charity regulator, the accounts could simply be submitted to HMRC along with the claim; as all charities are legally obliged to produce accounts irrespective of any requirement to submit them to the regulator, the burden this would impose on the charities would be minimal. Of course, the accounts would need to include details of the fundraising events at which donations subject to a claim under the Small Donations Scheme were received but, again, HBA would expect the annual reports and accounts and small local charities to include such information as a matter of course, so this would not create any significant additional burden on the charity. Not only would the above measures create little or no additional burden on charities, they would provide HMRC with a more robust means to detect fraudulent claims and enable more charities to benefit from the Small Donations Scheme to the maximum extent.
19. HBA welcomes the inclusion of this clause, which addresses a potential problem caused by a change in legal form of a charity (e.g. from an unincorporated association to a corporate form) as it develops. However, HBA is concerned that the change of status is restricted to a change in legal form. HBA would like to see the facility extended to allow HMRC to certify that a new form of the charity is substantially the same as an old charity, even if the legal form remains the same. For example, as part of a merger, two charities might become a single new entity, legally distinct from either of the original charities, but possibly of the same legal form. It would be unfortunate if the new charity were ineligible to make claims under the Small Donations Scheme for three years after the merger, and might result in the merger not taking place because of the loss over three years of up to £3,750. Such a figure might not sound much, but to a small charity it is very significant.
Schedule, Paragraph 1
20. HBA objects to the restriction of the Small Donations Scheme to cash donations. With modern technology, it is already possible for (effectively) anonymous donations to be received electronically, and the use of such systems is only going to increase. However, there is also the very real case of beneficiaries of small local charities (or family members of beneficiaries), such as hospital radio stations, wishing to make small donations after they have benefitted from the charity. Unsolicited cheques for small amounts will often arrive in the post along with an appreciative letter, and the combination of the administrative burden of asking the donor for a Gift Aid donation, and the wish not to trouble the donor further means that, often, Gift Aid is not reclaimed on these small donations. Neither charities nor the Government would wish to encourage the sending of cash donations through the post, yet it would seem that the Bill is encouraging just this – the donation being worth 25% more if provided in cash.
21. There is, of course, another aspect to this – how is HMRC going to know the form in which specific donations are made, unless they see the actual banking records?