Small Charitable Donations Bill
(11 years, 10 months ago)
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Lord Newby
My Lords, the gift aid small donations scheme was announced as part of a package of measures to encourage charitable giving in the 2011 Budget. It is a complementary scheme to gift aid, which, as noble Lords will be aware, is one of the main tax reliefs available to charities and their donors and is now worth more than £1 billion per year to the charity sector.
The Government recognised, however, that charities were missing out on a significant amount of potential gift aid income because it is not practical for them to collect gift aid declarations from passers-by in the street or members of a congregation who give small cash donations. This Bill, therefore, enables charities to claim a gift aid-style top-up payment on those small cash donations without the need for a gift aid declaration. Most charities will be able to claim top-up payments on up to £5,000 worth of small cash donations in a tax year. This means that they will have up to an additional £1,250 of income each year to help advance their charitable purposes. This is a significant boost to the charitable sector, which will particularly help small and grass-roots charities. Her Majesty’s Revenue and Customs estimates that this scheme will be worth approximately £100 million in additional funding to the sector each year once the scheme is fully up and running.
In constructing the scheme, the Government have had to strike a balance. The scheme must be fair and affordable, and it must be protected from fraud. Unfortunately, all repayment schemes attract fraud. HMRC already experiences fraudulent claims for gift aid—which is a more secure system than the new scheme will be—because charities have to keep more records of their gift aid donations. The gift aid small donations scheme is cash-based, so there will be only a limited paper trail. That means that it is highly likely that some fraudsters will be attracted to the new scheme, so it has been necessary to put some safeguards in place.
First, a charity must have had at least two years of a good gift aid track record with HMRC and have made successful gift aid claims in at least two out of the last four tax years. This will allow HMRC to get a good picture of a charity’s ability to claim gift aid correctly.
Secondly, charities and community amateur sports clubs must also claim gift aid alongside any claims for top-up payments under the gift aid small donations scheme. This means that a charity will need to successfully claim on traditional gift aid donations worth at least 10% of their claims under the new scheme in the same tax year. For example, to claim top-up payments on £5,000 of small donations, a charity must also claim gift aid on at least £500 of other donations in that year. This matching requirement allows HMRC to monitor the continuing compliance of the charity. The new scheme is designed to be light on paperwork, so it will be difficult for HMRC to comprehensively check whether a charity is compliant. So the ability to check the gift aid claimed by the charity gives HMRC a reasonable proxy to ensure that the charity is also claiming correctly under the new scheme.
Following representations in another place that the eligibility criteria were too strict, the Government tabled amendments that have reduced the matching condition from a minimum of 50% of gift-aided donations to 10%. The Government also agreed to reduce the eligibility criteria to claim under the scheme. A charity may become eligible to claim under the scheme after two complete tax years instead of three. In addition, instead of maintaining a gift aid claims record in at least three years out of seven, charities will need to claim in only two years out of four. These changes make the scheme more accessible, increasing the number of charities that can benefit and reducing the burden placed upon them.
As well as being accessible and protected, the scheme is designed to be fair. The Government recognised that an allowance of £5,000 per charity would have significantly inequitable results for some charities. Charities that perform similar activities are often structured differently for historical reasons. That means that, if every charity received this £5,000 allowance only, some charities could claim many hundreds—if not thousands—of times more in top-up payments than others. For example, every parish church in the Church of England is a charity, while the Roman Catholic Church is structured with a charity at diocese level, with some 200 parish churches forming part of each charity. Without special rules, the Church of England would have been eligible for many hundreds of times more claims under the scheme than the Catholic Church.
For this reason we have introduced the community buildings rules. These enable charities to claim an extra £5,000 allowance if they conduct charitable activities in a community building and meet certain other criteria. Charities that meet the criteria will be able to claim an extra £5,000 worth of small donations for each building in which they carry out charitable activities. HMRC will be issuing guidance to help charities understand the legislation and whether it applies to them. For charities that are unsure of their status, HMRC will be happy to give bespoke guidance.
This Bill represents a boost to the charitable sector by enabling charities to claim new top-up payments on small donations where it is currently difficult or impossible to collect the necessary paperwork for gift aid to apply. I commend the Bill to the House.
Baroness Hayter of Kentish Town
My Lords, first, I thank the noble Lord, Lord Hodgson, as through a small misunderstanding the names on the speakers list got put in the wrong order. I am not he. I also thank the Minister for introducing this welcome Bill.
The recent fall-off in charitable income—20% according to one recent report—particularly affects small and medium-sized charities, and this Bill is perhaps therefore even more important than it was when it started its life. Indeed, we understand that some one in six charities is threatened with closure and up to 40% worry that they may have to close if the economic situation fails to improve. A recent ACEVO report commissioned by the Cabinet Office revealed that charities stand to lose £1 billion this year as a direct result of government actions, at a time when demands on many charities are increasing, not least as a result of the Government’s economic policies. Nearly half the charities covered in this month’s CAF survey have been forced to use reserves to cover income shortfalls, with a quarter cutting some of their services.
We welcome the intention of the Bill and, indeed, its timing. We are not alone. The RNLI called it,
“a great opportunity for charities”.—[Official Report, Commons, Small Charitable Donations Bill Committee, 16/10/12; col. 36.]
The Institute of Fundraising estimates that it will benefit “a range of charities”.
The idea is good but the Government have made things far more complicated than they need to be. “Overly bureaucratic”, says the National Association for Voluntary and Community Action. Peter Lewis of the Institute of Fundraising said:
“The way that it has been drafted makes it far more difficult than Gift Aid itself”.
The Charities Aid Foundation, with all its experience and knowledge in the field, believes that,
“many charities that should be eligible for the Small Donations Scheme will struggle to access it”.
In particular, it stated that,
“linking the Small Donations Scheme to Gift Aid ... means that there is a hidden codicil”—
to the scheme—
“which should read ‘as long as they are also claiming sufficient normal Gift Aid on other donations, and have been doing so for at least two years’. This makes it less likely that very small organisations will be able to benefit from the scheme”.
Although we heartily wish the Bill well, we ask the Minister to think seriously about the problems raised repeatedly in the other House, especially where no movement was made by the Government. Of course, we are delighted with the changes that were made, in particular the changed ratio from 2:1 to 10:1, which opens up the scheme to many more charities, and the reduction from three to two years to qualify. I pay tribute to my colleagues in the other place, Cathy Jamieson and Gareth Thomas, whose determination and hard work, and in particular their understanding of the sector, enabled them to change the Minister’s mind. I hope that I will have similar success this evening; if not in amending the Bill, at least in getting a commitment out of the Minister. I will come on to that.
In seeking to assist small charities, the Government have come up with the most complicated of procedures that will involve far too much paperwork. This risks undermining their whole purpose. Of course, given that there is so much paperwork, there will undoubtedly be charities—Eton comes to mind—that will be well placed to take advantage. I am sure Eton has a large staff and, no doubt, a whole office dedicated to fundraising and gift aid. However, small grass-roots charities, parent-teacher associations or groups looking after victims or those with drink problems will not be able to. Many have no full-time staff, and they are exactly the charities that are answering phones, seeing clients, teaching riding to disabled children or running food banks. There is too much bureaucracy for them to handle.
Indeed, it seems that HMRC is more concerned with fraud than helping charities—the same HMRC, we must remember, which fails to tax Amazon, Starbucks, or Google, whose own executive chair said that he was,
“very proud of the structure that we set up”,
which was based on government incentives.
Will the Minister assure the House that those small but essential charities will be able to operate the complexity of this scheme, without the mass advice of a Google-sized team of lawyers and accountants? What thought has been given to those small charities which, by virtue of their size or lack of big donors, are not able to take advantage of gift aid and will therefore be excluded? Even those who do use gift aid are concerned, as the noble Baroness, Lady Barker, said in your Lordships’ House on Wednesday, that despite the fact that,
“the number of donations being given online and by text is increasing … charities are losing out, because gift aid is not yet fully digitised”.—[Official Report, 12/12/12; col. 1059.]
The scheme will succeed only if small local charities are aware of it, but these are precisely the ones less likely to be involved with the Charity Finance Group, the NCVO, CAF or the other umbrella organisations. How are they going to hear of it? We were disappointed that the Charity Commission chose not to give evidence to the Public Bill Committee. It makes us wonder how big a role it sees for itself in promoting the scheme—but if the commission does not do it, who will? Will the Minister outline his plans for publicising the scheme? We have heard talk of road shows, but we know that small charities do not have the time to spend time at those. I hope there will be something a bit more imaginative.
Perhaps the biggest problem with this overcomplicated scheme is the set of regulations covering community buildings. Although this might have been designed to assist church collections—which we thoroughly understand and endorse—it has ended up disadvantaging some of our most important groups. The RNLI is one organisation that has concerns, given that lifeboats, needless to say, carry out their work not in buildings but at sea. Where does the defined charitable activity take place: at sea or in the lifeboat station? If donation points are outside the station, how can one determine whether a donation was made during charitable activities or events? The definitions are too specific and not grounded in reality. Given such concerns about the workability of the new scheme, will the Minister tell the House whether HMT—or HMRC—consulted with relevant experts on the charity sector and, if so, which ones?
I come to the point where I seek a commitment from the Minister. We want this Bill to work. We need this Bill to work. However, it is key, given that we cannot amend it, that the Government look long and hard after two years at whether it is achieving all that we hoped for it. I therefore ask the Minister, quite simply, to commit to undertaking a review that will ask that question and report its results to Parliament. We need to know: how many charities are benefiting from the scheme; which are full, exempt or excepted charities; what the total outgoings on the scheme have been and how much extra money reached the charities, as well as the cost of administering it; and, finally, the level of identified fraudulent claims.
I feel certain that the Minister himself will want to know the answer to these questions. Will he undertake to share them with this Parliament—not after five years but after two? If the scheme does not work, those charities will need help by some other route to enable them to continue to do their work.
Lord Hodgson of Astley Abbotts
My Lords, this may be a slim Bill but, as has already been made clear, it is an important one and I warmly endorse the purposes behind it. I do so for the very obvious reason that it is common knowledge that fundraising for charities is not easy at present. Of the surveys that the noble Baroness referred to, at least one indicates the impact on charities of the economic crisis and subsequent recession. These competitive pressures have led to the emergence of some unusual stresses. Between 2.30 pm and 3 pm, we were discussing the Question from my noble friend Lord Naseby about the competitive pressure on the National Lottery. That body saw an increase of 8.6%, or £246 million, in the six months to September, but it is clearly concerned about its competitive position. So that macrostatistic, along with a lot of microstatistics, indicate why this Bill is particularly important to smaller charities.
Turning to the Bill itself, I begin by congratulating my noble friend and the Government on the steps taken to increase accessibility. As he pointed out, the historic record required to enter the scheme is being eased from three out of the past seven years to two out of the past four, and the multiplier is being increased from 2:1 to 10:1. This will be particularly important for newly-established charities, which will not have a well established donor basis. My noble friend kindly arranged a briefing on the Bill last week. I have one or two questions, of which I gave him advance warning then.
The first question relates to the nature of the two qualifying years. Do they have to be consecutive or not? He reassured me at the briefing that they do not. I would be grateful if we could hear that on the Floor of the House, because there is a lot of sector interest in the detail of this Bill. Could he explain, therefore, how that ties in with Clause 2(2)? Clause 2 is headed, “Meaning of ‘eligible charity’”. Subsection (2) says:
“If a charity did not make any successful gift aid exemption claims in a period of 2 consecutive tax years, any claim … is to be disregarded”.
My noble friend indicated that “consecutive” was not an important word but the wording of the Bill seems to indicate that it might be. I am sure that his Bill team will have a simple answer to that, but it would be helpful to have it on the record.
The second area of concern is what I describe as “in again, out again”. Smaller charities have periods of intense activity interspersed with periods of quietude. I will take an example of a medium-sized charity in a city, focused on homelessness. The charity may experience a period of very strong professional or volunteer leadership, which leads to a high level of activity; as a result, probably, a successful entry is made to the new gift aid scheme. However, after a time this dynamic leadership moves on and is succeeded by less active individuals. During this stewardship, among other things, gift aid applications are not made. After the fallow period, new people arrive once again, who find that gift aid applications were not made in any of the past four years. It would be helpful for us to know whether this will be a one-off entry—once in the scheme, you are in it—or whether there is a constant rolling programme whereby two out of four years must be kept in order for the charity to remain eligible.
On this part of this Bill, I need to make a plea on behalf of newly-formed charities. The House will be aware that the problem for many smaller charities is how to fund their central expenses—what we might describe as keeping the office warm and the lights on. It may be difficult to find funding for the provision of services but it can be found, whether it comes from local or national government or from grant-giving foundations; but not, for example, for the cost of preparing the bid for these contracts, or indeed for keeping the organisation running. For such charities this new gift aid scheme could be highly significant. Of course, the charity will have to be four years old before it can become eligible.
My noble friend quite properly and understandably underlined the dangers of tax evasion. I have no doubt that that may be thought to be more prevalent in newer charities. For all charities—new, old or well established—HMRC requires a “fit and proper” test to be met. Given the particular needs of newer charities, it would be helpful if my noble friend could explain why it was felt that the “fit and proper” test was not good enough for smaller charities when they were set up, and whether any thought has been given to other ways of including smaller, newer charities—for example, by having a lower level of multiple during those formative, probationary years, or perhaps a multiplier of only 5:1, as opposed to 10:1. Any danger of tax evasion would then be commensurately reduced.
My final set of questions is grouped around the heading, “What happens next?”. In the Public Bill Committee in the other place on 16 October, Mr John Preston, the national stewardship officer for the Church of England, explained that the church currently spends 200,000 hours of volunteer time administering the present gift aid system. He expressed the hope to the Public Bill Committee that this time commitment would be reduced following the passage of the Bill. An illuminating remark followed from Mr John Hemming, the Liberal Democrat MP for Birmingham Yardley:
“What you are saying is that it is not necessarily stuff in the Bill”,
that matters,
“it is a question of how HMRC handles it. Referring specifically to the Bill, is there something we can simplify—to make it easier—or is it really just a question of how HMRC takes it?”—[Official Report, Commons, Public Bill Committee, 16/10/12; col. 5.]
It would be helpful, therefore—here I follow the noble Baroness, Lady Hayter of Kentish Town—to talk a little about the timetable for introducing the scheme and the nature of the publicity that will be followed. I assume that HMRC will write to every gift aid charity to try to publicise it in that way and to explain how these concessions would work. My noble friend referred in his opening remarks to the fact that guidance would be provided. I hope that he will forgive me for saying that the guidance needs to be very simple. These are small charities working on a shoestring; they do not have access to accountants or lawyers. The guidance needs to be as user-friendly as possible.
I gave my noble friend advance notice that I wanted to take the opportunity this evening to talk about the relationship between HMRC and charities. I wanted him to take on board—and perhaps discuss with HMRC—the attitude it is adopting towards the charitable status of many smaller charities. I want to give the House an example. This charity has an income of £15,849 in the year in question. In August 2012 it received a notice from HMRC asking it to complete a form CT600 (short), because it is a small charity. The form was sent off in September. Two weeks later HMRC returned the form, saying that it no longer accepted paper forms—HMRC had, of course, sent it out in the first place—and that filing had to be done online. To file online requires a user ID number, a UTR number—UTR stands for unique tax reference—and a corporation tax activation code. On receipt of these, about a fortnight later, the trustees tried to file again and were refused. They were told to wait because the corporation tax activation code was not yet working. After waiting two more weeks, they tried again; again, they could not file, because the link on the HMRC website that should have read “How to file a return” was missing. They then resorted to the HMRC helpdesk. They were logged on to a form which appeared to be CT600 (long)—in other words, for a large company—whereas they wanted a CT600 (short) form. Further inquiries to the helpdesk revealed that one logged on to the long form anyway and it automatically adjusted itself to the short form as one went along. However, this was not clear to the uninitiated in advance.
So it went on. The final surprise to the trustees was when they offered to send in a PDF of their audited accounts, which provides independent verification of their accuracy, they were told that these were not required. This process took from August 19 to November 5 —this for a charity with revenue below £16,000 per annum. I cannot begin to guess what the cost was to HMRC of all this backing and filling. However, this is just one of many examples. I hope that my noble friend will use this and, indeed, the other examples that I would be happy to provide to urge the tax authorities to be proportionate and open and to understand how the smaller charity sector works.
The second area I want to raise tonight is the tax position of foundations. I gave my noble friend a heads-up on this, and I am afraid that, because I had not dug into the full question, I may have slightly misled him. A family foundation with a permanent endowment is not able to reclaim the 10% advance corporation tax on the donations it gives. Foundations were caught up in Gordon Brown’s raid on pension funds. Their income, and therefore their grant-giving potential, was reduced by 10%. The question on which I seek an answer tonight is: why should foundations not be able to gift aid that tax allowance to tax-recipient charities as private individuals can? It is not a question of double-dipping gift aid, because the permanent endowment on which gift aid may well have been claimed and taken remains intact. Why cannot gift aid be given on the returns that the permanent endowment has earned? I appreciate that these are technical questions but they are important to the charitable sector. I am not asking my noble friend to give a full response tonight; I am more than happy for him to write to me and put a copy in the Library. In welcoming this Bill, I am asking the Minister to make sure that all the good it is planned to do, and that we hope it will do, will not be undone by heavy-handed bureaucracy by the tax authorities.
Baroness Barker
My Lords, I declare an interest. I am the owner of a consultancy third-sector business that works with a lot of charities and social enterprises. In that regard, I should say that when I sat down to look at a Bill about the governance of charities, tax and eligibility, I felt as though I had had an early Christmas present. Thank you so much for sending me something that might seem boring to other people. I do not want to speak on behalf of the right reverend Prelate the Bishop of Exeter, who I am delighted is going to follow me, but, no doubt, given all the excitement going on in the church over the past couple of months, he is looking forward to a rather sedate ecumenical debate on tax as a relief because he is coming up to his busiest period of the year.
I imagine that every noble Lord who has spoken in this debate welcomed, as I did, the Chancellor’s announcement in Budget 2011 that we would have this scheme. When one first considers the gift aid small donation scheme, there is a tendency to think that we are talking about small charities. We are not. We are talking about small donations, and we could be talking about the biggest charities of the lot—the RSPCA and RNLI. It is important to bear that in mind. Nevertheless, there is particular added importance to the Bill now. The noble Baroness, Lady Hayter, mentioned the Charities Aid Foundation report and the ACEVO report. Having seen them, we all know that the outlook for charities, like that for other sectors, is going to be really bleak for the next few years. It is predicted that charities may lose up to £1 billion from a total income of £11 billion. That is an awful lot of money. In the charitable sector, that is an awful lot of jobs and an awful lot of community effort and social capital. This scheme, small as it may be, is none the less very welcome. If it succeeds in generating an income of between £50 million in 2013-14 and £115 million in 2016-17, it will be welcome.
I, too, have real difficulty with the way in which this Bill has been written. It seems that the original intention was to try to enable charities to derive maximum benefit from donations for which they cannot get names and addresses. The immediate default position of HMRC is fraud. We know that charities are used by unscrupulous people to perpetrate fraud, but that seems to characterise an awful lot of the relationship between HMRC and charities. At the end of my speech, I shall speak a little about how I think that might change. I understand that the Government have a duty to make sure that abuse and tax evasion are not in the system, but, like the noble Baroness, Lady Hayter, I sincerely hope that the same degree of assiduous attention is paid to the affairs of Google, Amazon and Starbucks.
What research was conducted by HMRC with the sector when it was putting together its proposals? I have read this Bill putting myself in the shoes of a treasurer of a small organisation and my heart sank the more that I read of it. I ask in particular because of the issue of connected charities. I listened very carefully to what the Minister said and I understand that taking the idea of connection as it relates to personal taxation and trying to apply that to charities has been done in a spirit of trying to generate some equality between different types of charity which, as he said, are set up in different ways for historical reasons. All the evidence from the charitable sector in the past three years is that rather than splitting up and becoming more profuse in their networks, charities are having to rationalise. We have had mergers galore as charities seek to make themselves not only more sustainable, but to ensure that like every other sector, they are becoming as smart, efficient and economical as they possibly can be in order to make their money go further. How realistic does the Minister think it is that charities will deliberately split their operations in the hope of generating a potential tax earning of £1,250?
What is the intention on community buildings? Is it to recognise the additional difficulties that charities have if they have to carry out their activities in community buildings or is it about trying to be fair to different groups of people who differ for other reasons? I read this part several times and it was not until I read it thinking it was about churches that it began to make some sense to me. I have some sympathy with it. I understand that it does not mention churches because it could also apply to secular organisations, such as scouts and guides, but the way that this is written is going to set up some anomalies. Worse than that, I think it is going to set up some confusion. Would the communal part of a housing association premises which is used once a week or once a month by an older people’s group for a lunch club or whatever be ruled out on the grounds that the premises are deemed to be largely of a domiciliary nature? Can the Minister clarify that?
My most important plea echoes what the noble Lord, Lord Hodgson of Astley Abbotts, said: when the guidance for this is written, can it be written up in real examples? I fear that if it is written in the terms in which it appears in the Bill, there will be a dramatic amount of confusion. Can the Minister tell us whether HMRC has a default position, or will have in this case, that it will draft the guidance in direct consultation with the users and the people who will be implementing it and trying to work with this legislation? I went to a very interesting meeting at NCVO during the summer. It was part of its digital hub. I understand that there is an online community of churchwardens. They are largely men in their late 70s or 80s. They conduct online discussions about their churches and the work that they do. They sound like a fascinating bunch of people. They are more familiar with iPads than some Members of your Lordships’ House.
I say that because it takes me to my last point. I am going to go back and talk about the modernisation of gift aid and modernisation of the relationship between HMRC and charities. The Bill tends to display a rather old-fashioned view of charities, even small ones. The biggest and most effective weapon against fraud is transparency. HMRC could have said it was a condition of this scheme that a charity had to have a website—it could be a most basic website—where the charity must publish its annual report and financial statement, including a part saying what money had been received using the gift aid small donation scheme. It would have meant that any organisation would have to do that in its community. HMRC would not have to look at it—the community could go and look at it. Believe me, people would be as willing to shop a charity they thought was being dodgy as someone seeking benefits. I honestly think it is time to facilitate a programme of modernisation between HMRC and charities because, if we do not, we are in danger of equipping charities to fight the war that has just been fought, not the serious battles ahead. Having said that, I welcome the intent behind this scheme and I hope it works well in practice.
The Lord Bishop of Exeter
My Lords, I declare an interest as chairman of the Churches’ Legislation Advisory Service, which represents all the main Christian and Jewish communities in the UK. On behalf of them and these Benches I welcome this Bill.
It was clear from the start that the Bill, first published in the Commons, was going to be helpful to the voluntary sector and to the churches in particular. However, there were fears then that some of its requirements were going to be too restrictive, particularly for small charities. I am glad to note, though, that before the Bill was published—and while it was going through the Commons—there were several informal and very productive discussions with officials. We are very pleased that Ministers have been so willing to listen to our concerns.
The reduction of the gift aid matching criteria from 1:1 in the original Bill to 1:10 in the Bill before your Lordships’ House will be very welcome to small congregations. Equally, the reduction in the time that a charity needs to have a successful gift aid claims history to participate in the scheme will make life a little easier for new charities, although I still question whether both this requirement and the matching one are really necessary.
As we have heard, churches vary enormously in the way they are structured as charities. For example, each Church of England parish—all 16,500 of them—is a separate charity, but the Salvation Army is a national charity with one registration number.
As the Minister has pointed out, the community buildings element in the scheme was introduced to create some degree of equitable treatment for charities such as the Salvation Army and the Roman Catholic Church that are not organised and registered at local level. The community buildings provisions in the Bill are still fairly complex, but I acknowledge that the Government have gone a long way towards meeting our initial criticisms and we welcome that.
Similarly, we felt that the initial proposals on connected charities ran the risk of connecting entirely different charities just because they had trustees in common—for example, where a trustee of a local music society is also a trustee of a local church charity. We are pleased that Ministers have clarified the position on that. However, I hope that this is an area where developing practice will be monitored, as there is still considered to be some risk that HMRC may try to suggest that local churches, or groupings within intermediate church bodies, are connected even though it would seem that the definition of connection in the Bill would not support this interpretation. For Church of England parishes there may be some additional protection in that parochial church councils are not trusts but bodies corporate. However, for other denominations and faith groups the situation may not be as clear cut.
The Church of England estimates that the scheme will be worth about £15 million to our parishes. On that basis, it will probably be worth at least that amount to other faith groups, if not more. That is extremely valuable but I will make a couple of suggestions that would make it more valuable still.
The first concerns simplicity. I am grateful to the noble Baroness, Lady Hayter, for her observations and I will not repeat them. Everyone in the voluntary sector is very much aware that a scheme of this nature is open to abuse and fraudulent claims, but I hope that HMRC will take a proportionate approach to regulation. We all know that no charity is immune from the occasional rogue trustee or treasurer, but the overwhelming majority of charities are honest and careful in their dealings with HMRC.
The second concerns payment methods. The scheme is about payments in cash only. One of the accompanying documents released with the Autumn Statement said that the Treasury wants to look at gift aid in light of the fact that people now give online and by text. It said:
“The Government will examine whether the administration of Gift Aid can be improved to reflect new ways of giving money to charity, in particular digital giving”.
While the Government are doing that, can they also look at how the small donations scheme is working? I can understand why Ministers want to keep the scheme simple at the outset but the world is moving inexorably in the direction of non-cash donations and perhaps at some point the scheme is going to have to take account of that. I should also say that for one religious group—the Orthodox Jewish community—a cash donation in the collection plate at the Sabbath service is simply not an option because Orthodox Jews are forbidden to carry money on the Sabbath.
This Bill is, inevitably, a complex one, but larger churches, including the Church of England, are reasonably confident of being able to produce full guidance notes in a simple format. It will be important though to ensure that the complexity of the Bill is accompanied by appropriate and accessible guidance across the whole sector.
In this context it needs to be remembered that gift aid is processed for the most part locally by volunteers. As we have heard, in the Church of England alone it has been estimated that it takes around 200,000 hours of volunteer time to do this, and we would not wish this to be increased by additional complexity. Finding further ways of refining operational simplicity would not come amiss, particularly for the benefit of smaller charities and churches,
It may be a matter of some small tweaks to the Bill’s provisions, but also for guidance to be given to HMRC. I echo the questions already asked by the noble Lord, Lord Hodgson, and I look forward to the Minister’s response. With those very slight reservations, I warmly welcome the Bill.
Lord Newby
My Lords, I am extremely grateful to all noble Lords who have spoken in this debate. I am very pleased that we decided to postpone the Leveson debate because if we had not there would be about 50 people grumbling at the fact that I will now attempt to answer the questions that speakers in the debate raised.
One concern everybody has raised is about whether the scheme is too difficult to administer and overbureaucratic, to which there are several answers. The key thing is that, at one level, it is very straightforward to operate. Charities are already filling in forms for gift aid. Under the scheme they simply have to tick a box to say that they want to claim additional cash under this additional scheme and they will get it. They do not have to fill in another form. If they are operating out of a community building, they have to give the address of the building. We are not talking about a long and hugely complicated form at all. It is very straightforward. That is one of the key things that HMRC is trying to do. It has to strike a balance between something relatively simple and something that is not open to fraud.
I confess that I started my professional life working in Customs and Excise, helping to devise schemes to help small shopkeepers account for VAT. There was a particularly assiduous Scotsman in our group who spent all his time in a corner trying to work out how shopkeepers could defraud Customs and Excise. We ended up with really quite complicated schemes as a result. They were designed to be simple, but because people were very worried about fraud—and you were talking about, as it were, real money then—we ended up with seven schemes which were designed to be simple but none of them was quite as simple as we had hoped. That is a danger of which HMRC have over the years become more aware, and why the scheme is designed to be as straightforward as possible.
Obviously, charities are not going to look at the Act, but at the guidance from HMRC. As a number of people have said, the guidance itself will be extremely difficult. HMRC is planning to produce two levels of guidance. First, a starter level will set out the rules as simply as possible; most charities will only need to use that, which will supplement the very easy form. Secondly, detailed guidance will explain how the law works to larger charities and charity representatives who want that degree of detail. HMRC will also help and advise charity representatives who want to develop their own guidance; we are thinking here possibly of the churches as an example.
A number of noble Lords asked about consultation with the charitable sector. HMRC undertook a public consultation on the detail of the scheme that ran from March until May this year. It was eight weeks long and 83 organisations and individuals responded to it. HMRC also held meetings with groups of interested people during the consultation period. It has been consulting on the detailed proposals with some charity representatives throughout the development of the legislation, including the Charity Finance Group and the Institute of Fundraising.
Over the summer, the Bill was used as a pilot for the public reading stage in another place. This is a new approach, a supplementary consultation stage where members of the public and organisations can give detailed comments on the draft Bill via the web. Sadly— I think it is rather sad—only 23 individuals and organisations responded to the public reading stage, and a number of them had already been involved in the consultation. It was a useful additional scheme, but whether or not it really added a huge amount is slightly doubtful.
The noble Baroness, Lady Hayter, and the right reverend Prelate raised the question of digital donations. The Government said in the Autumn Statement that we are examining whether the administration of Gift Aid can be improved to reflect new ways of giving money to charity, particularly digital giving. Obviously, young people in particular are going to give their money digitally; there is no doubt about that. As we are finding in many parts of legislation, the Government are, if anything, struggling to keep up with reality just as the digital revolution is changing the way we do everything.
We are starting this scheme with cash because we feel that that way we can make it work relatively easily, but we are going to look at digital giving and at digitising Gift Aid administration more generally. It is only a matter of time before we do all these things but, while people are currently worried about some of the complexities of the Bill, we are keen not to make them more complex at this stage and at least get going with straightforward cash donations.
Noble Lords asked about the publicity for the new scheme. HMRC is planning a four-stage publicity campaign over the next few months to alert charities to the new system and donation scheme. As well as media publicity, HMRC is planning to write in the new year to every charity that has claimed Gift Aid within the past three years to tell them about this scheme and about Gift Aid online. HMRC has also asked the charity representative bodies to help it spread the message.
The noble Baroness, Lady Hayter, asked me to commit myself to a review. The Government have committed themselves to a review. That is the good news. Sad to say, from the noble Baroness’s point of view, but entirely appropriately, the review is to be after three years. This is a relatively standard period for review after a scheme has come in and we definitely plan to do that. In the mean time, HMRC publishes national statistics on the cost of charitable tax relief three times a year. Once up and running, HMRC will publish details about the Gift Aid small donation scheme. These figures will be national statistics.
HMRC does not publish details of fraud rates, although as it received about £10 million of fraudulent Gift Aid claims last year, it is not an insignificant amount. Although, obviously, the last thing in the mind of the vast bulk of charities is fraud, there are people who will exploit any scheme if they think that they can do well out of it.
The noble Lord, Lord Hodgson, asked a number of questions. He asked about the detailed wording in the Bill on Clause 2(2), which refers to “2 consecutive … years”. Clause 2(2) does that because charities will need to make a Gift Aid claim at least every other year. The qualifying period is now two years, so it would be inappropriate to allow a charity a gap of two years or more in order to do so. I hope that that clarifies the position.
Baroness Barker
My Lords, could the Minister write to some of us to explain that point a little further?
Lord Newby
I would be only too pleased to write to all noble Lords here. Basically, it is the interaction of the general Gift Aid scheme and this particular element of it; but I will write to clarify that point absolutely.
The noble Lord, Lord Hodgson, asked again about the cost and whether HMRC would be proportionate, not heavy-handed, and efficient. He will not be surprised to hear me say that, of course, that is what HMRC plans to be. I hope it will be. My experience, working in HRMC—or Customs and Excise as it was—was that it did a lot of things extremely efficiently, and every now and then it did something which was less than efficient. It was the less-than-efficient examples which tended to get most of the publicity. I know that the relevant section of HMRC understands the point that the noble Lord is making. The Government are not setting up this scheme in order not to hand out the cash. We are setting up the scheme because we are very keen that it is successful and is able to help charities in this way.
The noble Lord asked about foundations and why they are in a position that is different from that of individuals. I am tempted to say, “Because they are not individuals”, but I will happily write to him with some of the background as to their tax treatment, which I absolutely understand is different from that of an individual.
He asked whether a two-year period was necessary, because a charity must already have been through the registration process, including the “fit and proper person” test. The test helps to ensure that charities, community amateur sports clubs and other organisations entitled to charity tax reliefs are not managed or controlled by individuals who might misuse the tax relief. Unfortunately, as I said earlier, fraudsters have been known to exploit charity tax relief, so the “fit and proper person” test exists to prevent that. However, even if a charity appears to be compliant in the first few years, changes in personnel can affect its attitude to compliance, so HMRC will need to continue to have evidence on which to base its assessment of the risk that the charity poses in relation to the scheme. That is why we have gone for a two-year qualification period. We believe that that gives an adequate protection against potential fraud, because people will have had to be up and running, making the thing work. Equally, it is not too long, which was the concern about the original proposals.
The noble Baroness, Lady Barker, asked specifically whether it would be possible under this scheme to collect funds and claim the gift aid from activities in housing association premises. To take a simple example, if the charity is a small local charity linked to a specific housing association and it wants to raise money from a collection in its premises or in a pub or anywhere else, it can do that. Things get more complicated if it is a branch of a large housing association—somewhat like a Catholic church—which wants to pray in aid the community building rules. In that case, because the housing association premises are essentially residential premises, it will not be able to do that, because that is the definition we have put in place.
That demonstrates that tax is complicated. There is no system we could have put in place that would have had any reasonable protection against fraud and which would not have run up against those kinds of complexities—and undoubtedly there will be anomalies. However, with tax, the choice before you is not whether you have anomalies but whether you do something or not. You are bound to have these anomalies. We took the view that putting in place a scheme that enabled charities to have access to £100 million was worth it, even though we knew that there would be some anomalies, because they come with the territory, as it were.
I believe I have answered the point that the noble Baroness, Lady Barker, raised about guidance to users. We are doing that on the various levels that she talked about. We have consulted, and will continue to consult, the standing body that HMRC has for dealing with the charity sector as a whole.
The noble Baroness made the very interesting suggestion of having a website, on which reports and a financial statement would be put. That is a possibility. I suspect that, if we had done that, someone would say that it was grossly unfair to small charities that did not have a website. However, given that we expect everybody in respect of benefits to use electronic communications, and that HMRC increasingly wants taxpayers to use them, it is not an unreasonable suggestion, and I am sure that my colleagues in HMRC will look at it.
The right reverend Prelate asked a couple of questions about simplicity and whether all the requirements were needed. As I said before, we had to take a view, and that view was that this struck the right balance between ease of access to the scheme and protection against possible fraud.
This debate has demonstrated that, if this were not a money Bill, we would be having extremely interesting discussions in Committee and on Report. Sadly, however, this is a money Bill. I therefore hope that I have been able to deal with the points that have been raised—
Lord Hodgson of Astley Abbotts
I did not hear the Minister address this directly but do I take it from the commencement date of the Act that Gift Aid under the new scheme will be available in the next financial year, starting 6 April 2013? Will it be in by then?
Lord Newby
My Lords, I believe that it will be but, again, if I am mistaken, I will include that in the letter that I have already committed to write to the noble Lord.
We have sought to strike the right balance between effectiveness, accessibility and security, and I believe that we have achieved that. The scheme will deliver an important new stream of revenue to the charity sector. I therefore commend this Bill to the House.