Small Charitable Donations and Childcare Payments Bill
Monday 12th December 2016
(7 years, 11 months ago)
Lords ChamberSmall Charitable Donations and Childcare Payments Act 2017 View all Small Charitable Donations and Childcare Payments Act 2017 Debates Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 14 November 2016 - (15 Nov 2016)
Lord Young of Cookham
Lord Young of Cookham (Con)
My Lords, the Small Charitable Donations and Childcare Payments Bill is a short Bill—just nine clauses—and a technical Bill, but it is not unimportant. Indeed, contained within it are positive and pragmatic changes intended to simplify and improve the operation of both the gift aid small donations scheme and the tax-free childcare scheme.
The charity sector is one of this nation’s great assets. Many noble Lords will have experience of working for charities or serving as trustees and patrons. They will therefore be familiar with the important work charities do, as well as the challenges and pressures they face. Of course, noble Lords serving on the Select Committee on Charities are currently gathering evidence on charity governance and the challenges of sustaining the charity sector.
The Government recognise the importance of the charity sector and it is for that reason that they provide support to charities and donors through a generous package of tax relief worth more than £5 billion last year. This is up from £4.7 billion in 2014-15 and £4.4 billion in 2013-14. One of the most valuable tax reliefs available to charities is gift aid, which was worth around £1.3 billion last year. Gift aid allows charities to reclaim from HMRC the basic rate of tax paid by individuals on their donations.
To claim gift aid, a charity must obtain a declaration from the donor confirming their status as a UK taxpayer. This process works well, particularly for large donations, and I am sure noble Lords will be pleased to hear that gift aid repayments to charities continue to grow. But the Government recognise that there are circumstances where it is just not practical or feasible for fundraisers to stop donors and obtain a gift aid declaration, leading to a gap in the amount of gift aid claimed. The gift aid small donations scheme is intended to help address this gap by allowing charities to claim a gift-aid-style top-up payment on small cash donations.
Noble Lords present may recall that, during the passage of the Small Charitable Donations Act 2012, the Government committed to a full review of the gift aid small donations scheme after three years of operation. The Bill is the result of that review and the Government have listened to the charity sector. Indeed, the vast majority of the provisions within the Bill were originally put forward by the charity sector itself.
The Bill will make the gift aid small donations scheme simpler and more flexible so that it can benefit a greater number of charities and donations. I pay tribute to the hundreds of charities, representative bodies and others that took the time to engage with HMRC during the course of the review. I am pleased to report that the reforms in the Bill are forecast to benefit charities by up to £15 million per year. The new rules will particularly benefit the up to 9,000 new charities that apply for recognition by HMRC each year.
The Bill is intended to make life easier for charities. It will therefore substantially simplify the eligibility criteria of the gift aid small donations scheme, making it much easier for smaller and newer charities to access top-up payments. Charities will no longer need to wait for two years before making their initial claim, nor will they need to have claimed gift aid in at least two out of the previous four tax years, as they do currently.
Removing these rules will leave just one remaining condition that charities must meet to access payments: the gift aid matching rule. This rule requires charities to claim gift aid of £1 for every £10 claimed under the gift aid small donations scheme. It is necessary to retain this rule to maintain a link between the small donations scheme and the full gift aid scheme. A link to the main scheme is important, both as a means of incentivising charities to engage with gift aid and to allow HMRC to ensure that charities comply with the rules. It is the Government’s view that these changes strike the right balance between simplifying the scheme—making life easier for charities—and maintaining an effective deterrent against the dishonest minority who would seek to exploit the rules.
The Bill also relaxes and clarifies the operation of the community buildings rules. These rules are intended to deliver fairness and broad parity of treatment for charities structured in different ways. Without these rules some charities would be able to claim vastly more than others for no reason other than differences in the way the charities are structured. For many charities, the community buildings rules work very well. For example, many local churches have been able to benefit from the rules. Indeed, the Archbishops’ Council recently commented:
“Parishes were able to claim record levels of Gift Aid, with a significant part of this increase arising from the use of the Gift Aid Small Donations scheme”.
This is to be welcomed and we of course want churches to continue to benefit from the valuable extra income provided by the gift aid small donations scheme.
However, it has also become clear that other charities have been less able to fully utilise their community buildings allowances, most notably Scouts and other uniformed groups which, although based in community buildings, undertake most of their collections outside the building. The Bill therefore relaxes the community buildings rules to allow charities to include donations collected outside the building but within the local area under their community buildings allowance. This change could benefit any local charity that regularly meets in a community building, such as a village hall or community centre. There is no requirement for the charity to own the building outright.
The Bill will also future-proof the gift aid small donations scheme. The scheme is intended to allow charities to claim a gift-aid-style payment on small, fleeting donations, such as those placed into a collection tin or church offering. However, noble Lords will be aware that cash transactions are declining as electronic payments become ever more prevalent. The Government have already worked with the charity sector to put processes in place for claiming gift aid on most forms of electronic donations, such as SMS and online.
During the review of the scheme, charity representatives demonstrated examples of the innovative new contactless collection technology being developed. The Government accept that in many ways these donations are analogous to the small cash donations made on the spur of the moment by passing individuals. The transactions are small, almost instant, and there is very little time to stop the donor to solicit a gift aid declaration. The Bill will therefore ensure that the gift aid small donations scheme remains relevant for years to come by opening it up to donations received using contactless collection terminals.
As I have explained, the Government are taking action to simplify the gift aid small donations scheme so that more charities are able to benefit. Last year 21,300 charities claimed a total of £26 million in top-up payments, a not insignificant amount, but we accept that it is lower than forecast. HMRC will therefore undertake a targeted communications exercise to promote greater awareness of the gift aid small donations scheme.
I shall now address the tax-free childcare provisions contained in one clause of the Bill. This clause is concise and technical but it nevertheless effects important changes and reflects the elements of the tax-free childcare scheme which make it innovative and cutting-edge. The Government brought the foundation stone of this ambitious scheme, the Childcare Payments Act, before noble Lords in 2014. Secondary legislation followed soon after and now, in 2016, the Government are testing tax-free childcare with parents and preparing to launch it in early 2017. Tax-free childcare will be rolled out gradually and responsibly, with parents of the youngest children being invited to join the scheme first until it is available to all eligible parents by the end of 2017.
Around 2 million families will be eligible for tax-free childcare in the first year and may access up to £2,000 of government support with childcare costs per child per year or £4,000 for disabled children. Parents will apply through a straightforward online process and open a childcare account for each child. They may then pay money into their accounts, and for every £8 a parent pays in, the Government will pay in an additional £2. The balance may then be spent on registered childcare needed to allow parents to work.
I now turn to the substance of the clause. The first change relates to the mechanism by which parents retain access to the scheme by reconfirming each quarter that they remain eligible to receive tax-free childcare. A successful reconfirmation ensures access to government support for the coming entitlement period. Entitlement periods standardly last for three months, but HMRC may vary them when new accounts are opened or to ensure alignment of dates—for instance, when a further child is added or when a new household is formed. The Bill will allow greater flexibility over how entitlement period dates can be amended. This will ensure that parents’ childcare account dates will align so that the number of times they need to reconfirm their eligibility for tax-free childcare can be minimised.
The other changes affect how parents who are dissatisfied with HMRC decisions can ask for them to be reviewed. They will establish standard, online forms that parents can use if they want to query a decision. This will make the process a lot more straightforward and convenient and makes for a truly digital scheme. However, we will still make sure that everyone is able to ask for a review. Those who, for any reason, are unable to use the online form will still be able to raise their queries using the non-digital channels that they used in applying for the scheme.
The Bill will make the gift aid small donations scheme more flexible and generous so that it can benefit a greater number of charities and donations. It will also make it easier for parents to interact with tax-free childcare. This Bill is good news for charities and for working parents, and I commend it to your Lordships.
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is a money Bill, so the horse is off down the road before we even have sight of the stable door, let alone a chance to bolt it. Nevertheless, it is a good Bill and certainly has my support. I shall focus my remarks on the charitable section. It is a good Bill for the charitable sector for two reasons. First, it simplifies the 2012 Act. Those of us who had the pleasure of seeing that pass through your Lordships’ House—as I recall it, the noble Lord, Lord Newby, was the coalition Minister in charge of it—drew attention to some of the complexities, which the Government are now addressing. It is important to place on record one’s thanks to the Government for having honoured their commitment to have a three-year review and coming forward with the result we have before us tonight.
Sometimes calling it the gift aid small donations scheme can confuse people because it is not gift aid. Gift aid is related to the donor’s ability to pay tax; this is a pure top-up. You just get additional money from the Government for raising a certain amount of money. That is an important distinction which sometimes gets lost in translation.
There are a handful of points I would like to make. First, I congratulate my noble friend and the Government on the simplification of the means for being registered for this and on the fact that you no longer have to be in existence for two years or to have claimed gift aid in at least two of the previous four years. This is self-evidently of huge importance to new charities struggling to get going. It is a very welcome step forward. However, the 25% or thereabouts take-up remains disappointing. It is hard to know exactly why this is happening. Partially, it may be the complexity and partially it may be ignorance of the scheme among smaller charities; I will come back to that in a moment, but this is a welcome development.
Less welcome is the continuation of the 1:10 ratio—the need for £1 of gift aid to access £10 of top-up—which obviously involves a lower level of record-keeping or no record-keeping. One of the challenges to charities, particularly small charities, is the moving ratio. You have to keep your eye on how much you have in each of these two pots in order to be able to claim the top-up. One does wonder whether it would not have been simpler to have a fixed amount. Under the present regulations, the maximum you can claim I think is £8,000, so you have to find gift aid of £800 to justify it. Do we really need to keep that ratio constant throughout, or would it be easier to have a fixed amount, say £250 or £300—I do not know what number, but some smaller amount—that you have to reach and then you are free to claim the full amount or any amount up to the full amount without further ado, further inquiry and further record-keeping? I suspect that what the Revenue is really concerned about is being able to convince itself that the claimant—in this case the charity—is a proper operation. Therefore, so long as a reasonably substantial sum of gift aid is being claimed—one could discuss what that would be—the Revenue should not be concerned about the amount, particularly given that there is a cap on it in any case. It would be able to see that there was a bona fide charity making the claim.
Thirdly, also disappointingly, a matter much discussed in Committee in the other place was the type of donations that qualify. I am sure my noble friend will put me right if I am wrong, but as I understand it, cash and contactless payments qualify, while cheques and text donations do not. I find this quite a hard distinction to justify. Arguments that a cheque writer can be contacted to fill in a gift aid form show, in my view, a touching faith in our fellow human beings. People will just not bother, and perhaps I can give the House an example.
One of the reasons that charities do not merge is the problems with standing orders. When a charity disappears, the standing orders in its name have to be re-signed in the name of the new entity. The banks will not accept standing orders to the old charity, even though it can be proved that it had merged perfectly satisfactorily and that everything was above board, blessed by the Charity Commission and so on. It has to be re-signed and readdressed. The failure rate of re-signing is about 85%, since you write to people, they do not bother to write back and gradually the whole thing falls away. I strongly suspect that in this case, where you are having to write to people and say, “Thank you for your cheque; we are very grateful, can you please sign this additional gift aid form?”, nothing will happen at all, or it will happen only in a small minority of cases. If this is the case with cheques, for which there is a certain degree of effort in terms of finding a stamp, finding an envelope and writing the cheque, for a text donation, which you do on impulse—you are sitting watching a programme, you are moved by what you see and you think, “This is a terrible thing and I am going to text a donation”—the idea that you can be followed through to get the gift aid is slightly fanciful. In particular, there is an £8,000 limit, so the danger of this thing running away with the Revenue is quite small. I hope that the Government will think about that aspect and some of the weaknesses in the present approach.
My noble friend made an important point on the issue of low take-up. Clearly, ignorance and lack of knowledge and sophistication among smaller charities mean that quite a lot of them do not know about the availability of the scheme. Those of us here who are involved in the National Citizens Service Bill were mildly—I will put it no higher—surprised at the emergence of the Revenue as a recruiting sergeant for the National Citizen Service. There is nothing wrong with that, but as various Members of your Lordships’ House said, a brown paper envelope from the Revenue usually has bad news rather than something that is likely to encourage you to participate. But if we are going to use the NCS model again, and if the Revenue is going to be open-minded and even-handed about it and publicise the scheme through its network to those small charities that they are aware of, that is a very welcome development, and the Government ought to be congratulated on it.
To conclude, this is a good Bill, and the Government should be congratulated. Your Lordships’ House can do nothing about it anyway, but I hope that the Government will think carefully about the possible changes and improvements that I and no doubt other noble Lords will wish to suggest. Perhaps we can persuade my noble friend to follow the noble Lord, Lord Newby, and promise us a review three years from now, in which case I look forward to seeing Members of your Lordships’ House again in 2019.
Lord Shinkwin (Con)
My Lords, I also welcome this Bill, particularly its emphasis on flexibility and simplicity, as already outlined by my noble friend the Minister. I will confine my remarks to small charitable donations and, in particular, the ways in which the Bill could benefit smaller charities. I am acutely aware that many of the charities I had the privilege of working for before I entered your Lordships’ House—such as Cancer Research UK, Macmillan Cancer Support and the Royal British Legion—are household names. They have to work hard to raise funds, but perhaps not as hard as smaller, community-based charities. There are more than 163,000 charities in the UK, 92% of the public believe that charities play an essential or very important role in society, and two-thirds of us have donated to a charity in the past year—yet when it comes to donations received to fund the vital work of charities, the picture is mixed.
Overall, charitable donations have remained consistent over the past decade. This is proof that the public continue to be generous in their support for the causes that they care about. Indeed, Britain is ranked as the most generous country in Europe. That is the good news. But this also hides a worrying trend: smaller charities are receiving a lower proportion of charitable donations than they did only six years ago. According to the Lloyds Bank Foundation and NCVO’s Navigating Change report, donation income had fallen across the board for small charities by 10% for those with an income under £100,000. It is therefore very important that we look at ways in which smaller charities in particular might be helped in their fundraising efforts.
The gift aid small donations scheme, brought in by the coalition Government, is undoubtedly very welcome and very well intended—and, as noble Lords have already heard, it is making a difference. Indeed, it is the sort of scheme that should bring significant benefit to smaller charities—those that need it most. It has been widely praised and supported by charities, and I know that the sector commends the Government for introducing it. But the sector also believes that the scheme has yet to fulfil its potential.
The fact is that it is not working as well as it could. In particular, smaller charities are struggling to access the scheme. Only one-quarter—21,300—of the 84,000 charities that the Government originally forecast would be using the scheme by now are actually doing so. I appreciate that this is acknowledged in the intention behind the Bill being debated today, which looks to simplify and extend the scheme. I also know that it is welcomed by the sector, yet it would like the Bill to go further.
Those in the sector tell me that there remain significant obstacles to smaller charities accessing the scheme, particularly around what has already been mentioned as the matching rule or requirement. We know that the matching rule is a serious obstacle to smaller charities accessing the scheme because, when they were surveyed by charity bodies including the Institute of Fundraising, the NCVO, the Small Charities Coalition, the Association of Independent Museums and the Charities Finance Group, 50% of the smallest charities that responded wanted to see the matching requirement reduced or removed. These organisations make up the majority of the charity sector and should be the focus of our support. If the smallest charities are struggling to access the scheme because of this requirement, surely that runs counter to a key and welcome objective of the changes to the scheme that we are debating today: to ensure that the scheme operates as effectively and flexibly for the greatest number of charities.
I understand from the previous stages of the Bill that the main objection to removing the matching rule altogether is that it is considered a safeguard against the potential fraudulent use of the scheme because it provides an audit trail, and because the matching requirement is important to act as an incentive to induce charities that currently are not using gift aid to start doing so. However, removing the matching rule would still mean that charities go through the process of registering with HMRC to use the scheme and to register with gift aid. By this, I mean that a charity would still register with the Government’s Charities Online website; it would still register with the gift aid online registration process; and it would still make claims under the gift aid small donations scheme through the same government website. So why does HMRC appear to believe that such assurances are insufficient to monitor those claiming and to deter potential fraudulent activity? What evidence has been put forward by HMRC of the ineffectiveness of these measures from a fraud perspective? If the scheme is significantly undershooting its proposed targets, could we not be looking pragmatically at how to ensure that the scheme achieves its full potential?
This Friday marks the Government’s Local Charities Day initiative, when we all celebrate the wonderful contribution that smaller local charities play in our communities and our country. The Bill that we are discussing today is very welcome because it is intended partly to benefit those very organisations by simplifying the gift aid small donations scheme. What a wonderful further cause for celebration it would be if the Government could commit to considering new ways to improve this important scheme, including by amending the matching requirement.
Baroness Barker (LD)
My Lords, I declare a non-pecuniary interest, in that I am an unpaid adviser to a company called Charity Checkout, which exists to assist small charities in particular to increase their ability to accept digital donations.
It is a great pleasure to follow the noble Lord, Lord Hodgson. He was indeed here almost four years ago exactly when we discussed this measure in the original Bill. I also echo some of the points made by the noble Lord, Lord Shinkwin. Back in 2012, noble Lords welcomed that Bill—as we do with this Bill today—and the Government’s intention to assist small charities.
However, as we did then, we have to regret that when HMRC comes into contact with the charitable sector things seem to go horrible wrong. Tomorrow we are going to talk about the digital economy and all sorts of ways in which the country will move to a new, bright digital economic future. As a user of HMRC services, I am constantly being told that everything will move online, but somehow when the charitable sector and HMRC come together, we are back to something that is maybe not quite “The Flintstones” but is Heath Robinson-like in its complexity. And so it has proved to be. The projections for this scheme were that it would raise in excess of £100 million and that it would involve all the charities, as the noble Lord, Lord Shinkwin, said. But it has not, and that is principally because of the complexity of doing so. I just do not ever get the impression that people within HMRC understand how difficult it is for small charities to deal with some of the forms and so on that they put out.
That said, there is much in the Bill to welcome. There are a quite a number of important improvements. The change in the upper limit to £8,000 will definitely make a great difference to those charities that can handle the complexity of this. I am very glad that we have got rid of the bizarre rules about where activities take place and which buildings would be considered to be within the scheme and which would not.
I share the warm greetings of the noble Lord, Lord Hodgson, for the fact that organisations will no longer have to have claimed gift aid in the preceding two years. I know that the Government consulted on whether a charity should have to wait two years until it could register for the scheme. The Government listened to the sector and agreed that the charity did not need to wait at all. Actually, I would have made a different decision. I would have insisted that charities had to have existed for a year, because they should be able to provide an annual report and an annual account that proves that they are a bona fide organisation. I would have done that rather than some of the other things, and I would have perhaps taken a different view particularly on things like the linking scheme. Nevertheless, the Government have made that decision—wrongly in my view, as I think charities should be more accountable.
The main point I want to follow up on, as did the noble Lord, Lord Hodgson, is the extent to which this linking mechanism is really working. The Minister in another place, Rob Wilson, cited the main reason for keeping it as deterring fraud by creating an audit trail. He went on to cite examples of frauds perpetrated by charities over the past year. From the totals that he prayed in aid in evidence to the House of Commons, that must have been gift aid frauds—they seem to have been big and systematic frauds. They do not seem to be fraudulent use of the small donations scheme. I would like to hear what evidence there is that the linking of the two schemes has managed to limit fraud.
I end with two points. I asked the Minister some Written Questions about the cost of administering gift aid and the gift aid small donations scheme. They are not separated out, so it is impossible to give a breakdown. When we talk about a review—as we inevitably will; this machine breaks down and needs to be repaired every couple of years—could we have a full analysis of the cost and cost-effectiveness of doing it this way? We are the only country in the world that runs a scheme like this, and I rather suspect that it is not the most cost-effective way for the Treasury to support charities. I suspect that we may move to a system whereby the initial registration for gift aid changes, has to be digitised and can be one where a donor can give permission for multiple donations to be made, particularly if it is done via an intermediary.
We also need to look at whether we should have a standard rate for gift aid and some kind of cap. That could be much more simply administered and might well end up being a lot more beneficial for the charitable sector than this clunky, although well-meaning, scheme.
Lord Stevenson of Balmacara (Lab)
My Lords, I declare an interest as a trustee of two small charities, neither of which I think benefit from gift aid or the SDS. I thank the Minister for introducing the Bill and all the speakers. Like others who have spoken, we broadly support the Bill and want to move it through as quickly as we can within the circumstances of this money Bill arrangement.
The Bill is aimed at simplifying the small donation scheme so that it benefits the greatest number of charities and increases access for smaller and newer charities. However, I feel that the Bill as drafted will not meet that objective, and I do not think that the Government have been listening to the small charities which have been complaining about the current scheme, because they have certainly been talking to us, and they do not tell the same story.
We all agree that smaller charities are facing significant financial and capacity challenges, which makes schemes such as the SDS, which support development of new income sources, all the more important. As the noble Lord, Lord Shinkwin, said, these charities face the greatest challenges accessing the scheme due to its restrictive requirements. In support of that view, we have been told that uptake is much lower than forecast, with only a quarter of the 80,000 charities that the Government forecast would be using the scheme by now actually using it. Surely we all want to make that change for the benefit of smaller charities.
However, as we have been reminded, this is a money Bill, so there is nothing further we can do about it in this House. We can rant and rage, but it will not have much effect on the words in the Bill. That is a pity, because there are clear ways in which the scheme could be reformed further to improve its accessibility. I suggest that the Minister and his officials take careful note of these points, and we hope that there will be opportunities to address them in later Finance Bills, either piecemeal or as a whole, because I think they will make a difference.
The main evidence that we have received seems to be about changing the matching requirement. All noble Lords who have spoken have mentioned that the matching requirement requires charities to make a certain volume of gift aid claims through the traditional system in order to access the SDS. In practice, this is £1 of gift aid for £10 via the donation scheme. A priori, it is more difficult for small charities to comply with this, as in their earlier years they often raise small amounts of gift aid or lack the capacity, as they are operating with volunteer staff, to process the gift aid donations. The suggestion by the noble Lord, Lord Hodgson, of a fixed annual amount has some merit, and I would support that, if it were brought forward.
When the Minister introduced the Bill, he said it was vital that schemes such as the SDS have appropriate and effective measures in place to prevent fraud and ensure that taxpayers’ money is well spent. Obviously that is true. However, in order to use the SDS, charities have to register not only with the Charity Commission, their own effective and efficient regulator, but with HMRC, under the normal gift aid scheme. Like the noble Baroness, Lady Barker, I am sceptical about whether there is really any evidence to demonstrate the extent to which the matching requirement is a necessary mechanism to prevent fraud and error, how effective it is and whether the matching ratio of one to 10 is necessary to stop fraud. I would be grateful for any evidence that could be provided, perhaps by letter.
The Government have stated that the small proportion of organisations affected by the matching rule means it does not need to be changed. Surely this is disingenuous. It is also ironic: because the claims from the groups concerned are small, organisations affected by the rule are more likely to be the smaller organisations that the Government wish to help with the scheme.
I have two further points. We do not believe that restricting the scheme to cash or contactless payments does enough to help charities or encourages them to use gift aid. The noble Lord, Lord Hodgson, made some points about that, and I agree with him. The Government could significantly expand the support available to small charities by expanding the types of donations used in the scheme and ensuring that charities which rely on texts, cheques or one-off online donations are not penalised. Will the Minister give consideration to that?
Finally, despite the community buildings requirement, local civic groups—the scouts and girl guides have been mentioned—are restricted in their ability to use the main SDS allowance as it is currently designed, as they are treated as being one organisation, so they can have only one joint claim for gift aid. This is despite these groups having to fundraise for their own activities locally, and often not being financially dependent on each other. We recommend that HMRC end this interpretation when it can be demonstrated that local groups not only raise their own funds but are not financially dependent on each other. Again, will the Minister agree to take this idea back?
Having said that, we support the Bill, including its formulations about childcare, and we wish it well.
Lord Young of Cookham
My Lords, I am very grateful to all those who have taken part in this short debate for their contributions and for their broad support for the objectives of the Bill. I have noted, and will touch on, some of the very helpful suggestions that have been made.
One of the questions was when there would be an opportunity to have another look at the scheme. All tax policy remains under constant review, and the scheme we are discussing is no exception. In addition, HMRC publishes a national statistics package every year, providing a wealth of data, including the total amounts claimed under the gift aid and small donations schemes. This transparent approach allows interested parties to monitor the take-up and effectiveness of charitable tax reliefs constantly. But all suggestions made during the debate will of course be looked at by the Ministers and officials who have responsibility for taking this important policy forward.
Quite a lot of the comments were focused on the link between the small donations scheme and gift aid. There are a number of arguments for nudging people towards gift aid wherever possible. First, the gift aid scheme is not cash limited, whereas the small donations scheme is, so the more people can put on the gift aid side, the more people will be outside the cap. Also, with gift aid the charity gets a list of the donors who support it, which obviously does not happen with the small donations scheme. There is also the issue of safeguards against fraud, which I shall come to in a moment.
On the issue of publicity for the scheme, a number of noble Lords commented on the fact that the take-up has not been as high as we, or they, would have wished. As I said, we will publish the scheme, and I take note of the comment by my noble friend Lord Hodgson that publicity should not come in brown envelopes marked “HMRC”, which strike terror into the hearts of most citizens. We should find a more user-friendly way of publicising details of the scheme.
A number of noble Lords suggested that the matching requirement might be dropped. This was raised during the review that the Government undertook. The matching rule was not identified as an issue in the vast majority of responses. Even the charity finance groups and the NCVO’s own call for evidence response acknowledged that only 5% of the charities that they surveyed claimed no gift aid, which does not wholly support the assertion that the matching rule is a significant barrier for most charities. The argument was also put forward that it was excessive and that one way around this would be to have a fixed amount. HMRC requires a regular pattern of gift aid claims to be able to ensure that a charity is and continues to be compliant with the main gift aid scheme. It is a sort of proxy for compliance, having the link between the small donations scheme and gift aid. The organisations continuing compliance with gift aid and HMRC’s ability to check a number of claims is the closest proxy to help to assure compliance under the new scheme. Requiring a number of gift aid claims to be made, which includes the provision of donor declarations alongside claims for top-up payments, increases the protection against fraud and abuse, which I shall come on to in a moment.
The scheme is at risk from fraud. The Government believe that a matching requirement is an important anti-fraud element of the scheme. Even if a charity appears to be compliant for the first few years or with the first claim, changes in charity personnel can affect an organisation’s attitude to compliance, so HMRC will continue to need some evidence on which to base its assessment of the risk that the charity poses in relation to the scheme. There are some unfortunate examples of individuals exploiting charitable status for criminal purposes. In May this year three individuals were jailed for a total of 22 years for defrauding HMRC of £5 million in fictitious gift aid claims; in April three individuals were jailed for a total of 11 years for submitting fraudulent gift aid claims totalling £340,000; and in January two individuals were jailed for a total of five years for attempting to fraudulently claim £500,000 in gift aid from HMRC. This demonstrates that there is some risk of abuse in the scheme.
I was pressed by my noble friend Lord Hodgson to extend the gift aid small donations scheme to include other forms of payment—direct debits, cheques and credit card payments. The aim of the scheme is to allow charities and community amateur sports clubs to claim a gift aid-style payment on cash donations received in circumstances where it is difficult or impractical to collect donors’ details. Giving by cheque means that the donor is giving their details to the charity, and the extra amount of information needed to make a gift aid declaration is relatively small. If it is practical for a donor to write a cheque, it seems reasonable to assume that it is practical for the donor to make a gift aid declaration at the same time. When a charity has an ongoing relationship with a donor, you should use gift aid if at all possible.
Lord Hodgson of Astley Abbotts
My noble friend is doing a splendid job with a brief that is not entirely his. The Revenue always produces these stupendous figures—£5 million here and £5 million there—but we are talking about an £8,000 maximum per charity, so there is a limit to the extent to which bad boys can run away with the ball. I am not asking for a response—just to place on the record that the Revenue is being unfair to my noble friend by talking about £5 million being cheated out of charities when we are talking about a very limited scheme. It was an unfair speaking note that it gave my noble friend.
Lord Young of Cookham
I take full responsibility for any speaking notes that I deliver. If one looks at some possible structures, you can have a charity with a number of community buildings and each one could claim £8,000—so it is not necessarily capped at £8,000. Depending on the structure of the charity, it would be possible to claim a much larger figure. I take on board the point that my noble friend has made.
Progress is being made on making SMS slightly more user-friendly. SMS text giving is an easy way for donors to give to charity; donors simply send a short code to a six-digit number to donate a set amount via their phone bill. There is an established process for donors to gift aid SMS donations. Following the initial message, a reply is sent to the donor, thanking them for their donation and asking for their name, house number, post code and confirmation that they are a UK taxpayer. If the donor replies with this information, gift aid is added to the donation. HMRC is working closely with the sector and we are introducing new legislation in April 2017 to simplify the process for claiming gift aid on donations made through digital intermediaries.
Lord Stevenson of Balmacara
The Minister is saying that there will be a legislative initiative in the forthcoming year, reflecting on the text side of things. A number of noble Lords raised the question of whether that clause would be applied. I take the point that a text message contains some metadata which would be useful if you wanted to pursue gift aid. I still do not get the point made by the noble Lord, Lord Hodgson, about why, if you are going to accept that for gift aid, we cannot see it applied to the SDS scheme as well. It is a way of transferring cash but, unless you have very agile, slim and slender thumbs, it is not easy to do all the stuff that you are asking for. It would fit perfectly into the idea of being additional cash.
Lord Young of Cookham
None the less, there is an advantage in getting it scored as gift aid rather than as a small donation, because there is a cap on small donations but not on gift aid. It is in the charity’s interest to try and nudge donations, wherever possible, down the gift aid route rather than the small donations one. The noble Lord asked about the take-up of the scheme and said that it might be too restrictive and complex. Some 21,300 charities took advantage of the gift aid small donations scheme in 2015-16, claiming a total of £26 million. Take-up of the scheme continues to grow year on year, but I take the point that it has come in below the forecast. That is why we are removing a number of eligibility requirements and relaxing the community buildings rules, which will make it simpler and easier to claim, particularly for smaller charities, and make it possible to score donations that are not collected in community buildings but in the local area. I hope this will help a number of charities which do not claim at the moment to do so.
I turn to the point made by my noble friend Lord Hodgson about fraud. Although the headline maximum payment of £2,000 is modest, fraudsters can hijack or set up multiple charities and claim multiple amounts. The community buildings rule enables some charities to claim significant amounts of top-up payments in their own right, so it can potentially add up. In any event, we have a duty to ensure that public money is spent properly. Any amount of taxpayers’ money going to fraudsters is a significant issue. The noble Baroness, Lady Barker, suggested that we should abolish gift aid and—if I have understood her correctly—give charities a top-up on all donations received. This would be a radical reform, but it would not be welcomed by many in the charity sector. In fact, in 2010, charity representatives on HMRC’s gift aid forum considered whether gift aid should be reformed, including removing the link to individual tax contributions. However, they concluded that gift aid should remain as a tax relief. We are open to representations on how we can improve gift aid but are not currently considering reforms along those lines.
Finally, the Government are anxious to continue general support for charities. Some 73% of adults give money to charity in the average month. We are the most generous nation in Europe, so there is much to celebrate. We are offering incentives to encourage giving: we provide a generous package of tax reliefs for charities and donors which was worth £5 billion last year. The Government are proud to support the Grow Your Tenner fundraising campaign, which starts today. We have contributed £245,000 to match donations from the public through the campaign to local charities and community groups. We funded the small charities fundraising training programme to help small charities build the skills needed to fund-raise effectively and later this year we are going to hold a local charities day to celebrate and promote engagement with local charities and community groups.
If I have not touched on all the points made—and I am conscious that I have not—I will write to noble Lords dealing with the issues they raised. In the meantime, I thank them for their suggestions. Even if I was totally persuaded by their arguments, this is a money Bill so, as the noble Lord, Lord Stevenson, implied, there is nothing we can do about it. I hope, on that basis, we can make progress with the Bill. I beg to move.