9/14/2013
Re: Gift Aid Digital Consultation
I have read with great interest the document named above and give feedback about it below.
The aim of Proposal 1 is to shorten the Gift Aid declaration, on the grounds that the current length of
the declaration is off-putting to potential donors and in particular to those that wish to make donations
by mobile text. The proposal would involve capping the amount of Gift Aid claimable by a charity to
the level of taxes paid by a donor and transferring “liability” to the charity so that it
becomes responsible for the shortfall, i.e. the level of Gift Aid claimable is offset by any shortfall.
An opt-out scheme is not discussed in this consultation document, but with such a scheme, and
“liability” formally transferred to charities, the issue of determining the amount of Gift Aid payable
can be resolved by the charity in collaboration with the tax authorities, without the donor having to be
involved in any way (Q8). This does not involve any additional “risk” for charities – charities simply
receive the Gift Aid that is payable to them according to the rules. A perception of “risk” for charities
only arises if there are initial overpayments made to charities that are later followed by refunds from
charities. But this is only a matter of payment synchronisation, which could be taken care of easily
by initially withholding a suitable fraction of the Gift Aid payment (e.g. a customised fraction for
each charity based on information about the amount of Gift Aid that was not covered by taxes in the
previous tax year for that particular charity plus a small margin), and following this up with a later
residual payment that takes tax calculations into account.
If there are requirements that taxpayers be made explicitly aware that Gift Aid is a form of tax relief,
and that it is related to the taxes they pay, this could be done in an administratively simpler way
(e.g. HMRC could notify all taxpayers in a separate communication or attach the information to
existing communications and make the information available through the HMRC website; and so on).
An opt-out registry would then achieve the aim of Proposal 1, since there would be no need for
any declaration from the taxpayer at the point of donation, and it would be much simpler and
less costly to administer as there would be no need for a taxpayer declaration at all. Taxpayers
should be indifferent to the change, as there is no liability on them.
The change would also imply that that there would not need to be any limits for individual
donations that can be made with a shorter Gift Aid declaration (Q9). The rationale for desiring a
“reasonable limit” for individual donations is that it would limit the “potential exposure of charities if
donors were to knowingly make a donation under Gift Aid without having paid sufficient tax to cover,
in the knowledge that the charity will be liable for the shortfall in tax”. This rationale seems
misguided to begin with as charities do not “lose” anything if they are made responsible for
making up the shortfall in tax paid – all that happens is that a smaller amount is payable to them in
accordance to the rules – but the move to an opt-out scheme would remove any residual need for such
cap.
A formula apportionment rule should be used to calculate tax
“charges” (Q10). The most natural approach would probably be to make
all charities “proportionally liable” according to the size of the
donation received; i.e. if a donor who has paid £500 income tax in a
particular tax year makes a donation of £3,000 to charity A and a
donation of £1,000 to charity B, then the total shortfall of £500 would
be allocated between the two charities according to a three-to-one ratio –
Department of Economics
The University of Warwick
Coventry CV4 7AL United
Kingdom
Tel: +44 2476 523 742
Fax: +44 2476 523 032
Email: k.scharf@warwick.ac.uk
www.warwick.ac.uk
£375 to charity A and £125 to charity B.
I do not see why HMRC should tell charities which donations the tax charges relate to (Q11).
See my comments above about the limits (Q9). The rationale for wanting to tell charities which
donations the tax charges relate to vanishes if one stops thinking of these charges as liabilities to the
charities (which they are not); these should not even be called tax “charges” or “liabilities” – as
previously noted, the charity is not “losing” any of its own resources in cases where it needs to make
up a shortfall, it is simply receiving a smaller transfer from government (paid for out of tax revenues)
in line with tax rules.
If charities are made liable for shortfalls, then under an opt-out scheme, all taxpayers would
automatically belong to a Gift Aid registry (unless they explicitly opted-out of Gift Aid) and so
there would be no need for a Gift Aid declaration at all (Q12) and no need to maintain a “new”
and administratively complex and expensive registry. The need to “retain the link to donor's tax
affairs in order to retain Gift Aid's status as a tax relief” could be met through an administratively
simpler and more targeted mechanisms than a declaration from the taxpayer at the point of donation.
On a different aspect of the proposal, I think that allowing donors/charities to opt for a longer
declaration (which would allow liability to remain with the taxpayer) could make the system overly
complicated and potentially confusing – the implications of the longer declaration would have to be
explained by the charity to donors, which may scare some donors off, not just in relation to the use of
the longer declaration but in relation to Gift Aid more generally.
Proposal 2 seems to amount to the creation of an artificial need requiring new support services
that are then privatised. I say this because there is no real liability (see above responses) and so
there is no need for insurance. Of course a private company could become a broker for “shortfalls”:
and since they would only provide “insurance” against these, from an actuarial point of view it would
be a low cost venture for them (they would be happy to do the provision as it would be profitable for
them). However, charities would end up receiving less money under this scheme since they ultimately
would have to pay for intermediation out of their own resources and this would be a waste of those
resources.
Proposal 2 seems harder to manage than Proposal 3 with respect to the changes implied by
Proposal 1. Transferring liability to intermediaries is problematic (as it is not just an offset of
Gift Aid received but a net liability), and transferring liability to charities would require a
three-way liability chain involving HMRC, the intermediary and the charity. Proposal 3 seems
cleaner and simpler. Proposal 2 introduces additional complexity and transaction costs when it
is not even not even clear that any of this is necessary.
I hope you find this feedback to be useful and feel free to contact me if you would like more
discussion or clarification of the above points.
Sincerely yours,
Kimberley Scharf, Professor of Economics and Research Area Director of the Centre for Competitive
Advantage in the Global Economy (CAGE).
www.warwick.ac.uk