Small Charitable Donations Bill

Baroness Barker Excerpts

Tuesday 18th December 2012 Lords Chamber

[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.

--- Later in debate ---

[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—