Source: Civil Society
Gift aid and other tax reliefs, worth over £1bn to charities, have not been proven to actually increase the amount of money given to good causes, according to a report released today by the National Audit Office. The NAO report has found that HMRC and Treasury have no evidence to show that these tax incentives have actually incentivised more philanthropy and emphasises the significant cost to HMRC of administering the reliefs, as well as the losses to the Exchequer associated with avoidance schemes.
While the NAO acknowledges the importance of gift aid income to charity, it notes that this income has not changed in real terms over the last 13 years (from £1.06bn in 1999/2000 to £1.04bn in 2012/13), whereas the value of gift aid to donors has skyrocketed from £130m to £940m over the same period. Gift aid and other charity reliefs, NAO reported, cost the HMRC £9.7m to administer in 2012/13. Gift aid accounts for about 2 per cent of all charity income.
Amyas Morse, head of NAO, said that despite the increase in money going to donors, “the Exchequer departments cannot demonstrate that these incentives are working, or that the increased cost to the taxpayer has resulted in a rise in donations to charity”.
Research released earlier this month by Blackbaud suggested that plenty of charities do not claim gift aid at all – 42 per cent of the 600-odd charities that participated in the study claimed not to. The 2012/13 financial year represented a second year of decline in the total amount of gift aid claimed by charities. The NAO is also concerned by the “serious compliance challenge” faced by HMRC. No specific data is available, but it is estimated that the HMRC loses around £170m a year from the abuse and miscalculation of charitable tax reliefs. There is a further £217m in tax “at risk” by eight marketed avoidance structures which the HMRC is currently challenging.
HMRC believes it recovers £44 of tax revenue for every £1 it spends on compliance activity.
NAO was critical of the lack of evidence held by the HMRC and Treasury that government has managed to encourage take up of tax incentives, or indeed that reliefs have increased donations to charities. A review conducted by HMRC in 2005 also failed to find evidence of any such impact. These arguments should be familiar to the charity sector, which heard similar concerns about effectiveness of reliefs, cost of administration and risk of abuse when government sought to scrap the tax incentives for giving by higher rate taxpayers. Last month BBC political editor Nick Robinson warned a room full of charities that government was preparing to revisit the charity donation tax cap, after it was shouted down last year.
‘HMRC needs to better understand charities’
The NAO makes several recommendations in its report, including that the HMRC “needs to better understand its customers in the charitable sector in order to improve its ability to identify risk”. HMRC, NAO reports, “plans to undertake a full assessment of the losses for charity tax reliefs in autumn 2013”. The Audit Office recommendations focus on improving communication and the evidence base on gift aid take-up among charities and donors.
Government this year opened a consultation into gift aid and digital giving, but many in the charity sector believed the proposals fell short of the reforms needed to simplify and improve the system. The government has not yet responded to the consultation.
The Institute of Fundraising said there was much in the NAO report which was positive, particularly its criticism of the HMRC for failing to adequately promote gift aid to charities. IoF chief executive Peter Lewis told civilsociety.co.uk: “We agree that HMRC should do it more effectively and efficiently. We want more charities to use it. Money which goes to charities serves a public benefit and is good value for money.” However, Lewis was critical of the fact that while the NAO bemoaned that HMRC had not promoted gift aid, it did not recommend the body do so. IoF head of policy Dan Fluskey added that while there was no evidence to prove gift aid had buoyed donations, there was no evidence to the contrary either. Besides, said Fluskey, increasing giving was only one of the aims of the reform of gift aid in 2000. He said the changes also aimed to demonstrate a government commitment to charity, and to the concept that charitable donations should not be subject to tax.
Jane Tully, head of policy and affairs at Charity Finance Group, said her organisation too was pleased with the acknowledgement of HMRC’s shortcomings in promoting the scheme and recording its impact. “From the sector’s perspective gift aid is extremely successful and important and we know that it makes giving more affordable. However, we have concerns that there is not a good enough understanding of how many more charities and individuals might be able to take advantage of the scheme, and how HMRC assesses success of the scheme against this backdrop,” she said.
“The recovery rate HMRC has of £44 to every £1 spent on compliance work is an important figure and appears to be good value for money; it would be interesting to know how this compares to recovery rates for other compliance work elsewhere in HMRC especially as it looks as though HMRC intends on increasing resource here. Is the high recovery rate here due to the fact that there is, relatively speaking, more resource in compliance comparable to other areas of HMRC? The report shows that 98 per cent of the value of open HMRC cases is not related to use of charitable tax reliefs. We feel increased scrutiny or better compliance systems from HMRC could be positive for the sector.”