Further consultation on gift aid donor benefit rules
The Treasury has published the outcome of a consultation looking at the rules governing the benefits that charitable donors can receive as a consequence of making a Gift Aid-eligible donation, and says it will now conduct a further review of the monetary thresholds underlying the relevant value test
14 Nov 2016
Under current rules, for donations up to £100, the value of the benefit can equate to a total of 25% of the donation; for donations between £100 and £1,000, the value of benefits is capped at £25, while for donations over £1,000, the value of the benefit can equate to a total of 5% of the donation, up to a maximum annual benefit value of £2,500.
The earlier consultation, which ran between February and May, asked whether calculating the ‘net’ amount of donations on which gift aid can be claimed by deducting the cost of providing donor benefits from a charity’s gross donation receipts would achieve genuine simplification of the rules.
It also considered other alternatives, including removing the relevant value test and aggregate value test and operating gift aid donor benefits through an extension of the split payment approach allowed under an extra statutory concession.
The responses showed a majority disagreed with the ‘net’ approach, which was identified as being complex to operate. More than half of respondents said it would be inequitable to offset the full cost of all benefits, including those provided to donors of funds ineligible for Gift Aid.
Only a few respondents felt that splitting all donations into a market value ‘purchase’ of benefits and a remaining ‘donation’ element in this manner would represent a simplification of the current rules, while more than half disagreed. Many were concerned about the difficulty of establishing the market value.
Overall, very few respondents (less than 10%) felt removing the monetary thresholds altogether and replacing them with one of the alternatives outlined would mitigate the administrative burden on charities. More than half of respondents explicitly said that they would not.
There was also little agreement on the question of reducing the number of monetary thresholds. There was significant support for moving to a percentage-based threshold system, with nearly three-quarters of respondents in favour, but these responses were often caveated (most usually in relation to the level at which the threshold should be set and the method used. A significant majority of respondents felt that a disregard for low value benefits (below £3) would be a simplification.
A number of respondents highlighted an anomaly in the current system of thresholds that allows twice the value of benefits for an increase in the donation made of just £1 (where the donation increases from £1,000 to £1,001).
The Treasury says that it now plans to have a further consultation on the specific issue of monetary thresholds, in part to address this anomaly. The current maximum annual benefit value of £2,500 would continue to apply in all cases.
The current 25% limit on benefits for donations up to £100 would remain unchanged. For donations over £100, the upper limit for the £25 threshold would be reduced from £1,000 to £499 and the 5% threshold would apply to donations of £500 and over.
Responses to the original consultation indicated a fair level of support for moving to a single percentage threshold but this was often subject to confirmation of the rate at which the threshold would be set. The Treasury says for this option, the government would be likely to set the single threshold at a rate in the region of 10% if accompanied by a disregard for low value benefits or in the region of 15% without a disregard.
Some respondents suggested that two thresholds could simplify the system to some extent, whilst also protecting the value of benefits for small donations. The government believes there could be some merit in this approach, but the Treasury warns that two threshold system that operates in the same manner as the current system would be likely to create a ‘cliff edge’.
It is therefore proposing an alternative which would involve calculating the donor benefits allowed for a single donation using two different percentage rates, i.e. applying one percentage rate to the first element of a donation and a different rate to any amount exceeding this. The total of these would be the permitted limit to the value of donor benefits.
On this basis, the government would be likely to set rates in the region of 25% of the first £100 of a donation, plus in the region of 2% to 4% of any additional amount donated if a disregard operated alongside, or 5% of any additional amount donated if not accompanied by a disregard.
The further consultation which asks for views on these options closes on 3 February 2017.