DPRR/12-13/46
MEMORANDUM TO THE HOUSE OF LORDS SELECT COMMITTEE
ON DELEGATED POWERS AND REGULATORY REFORM
SMALL CHARITABLE DONATIONS BILL
Introduction
1.
The Small Charitable Donations Bill (“the Bill”) provides for a
scheme for eligible charities and community amateur sports
clubs (CASCs) to claim top-up payments from Her Majesty’s
Revenue and Customs (HMRC) on the small donations they
receive without a donor making a gift aid declaration, for
example through street collections. A small donation is cash of
£20 or less collected in the UK. The amount of the top-up
payment will be computed in the same way as if it were tax
relief on a donation made under gift aid and claims will
generally be limited to a top-up payment on a maximum of
£5,000 of small donations received in a tax year. The scheme
will be known as the Gift Aid Small Donations Scheme (GASDS).
2.
Charities and CASCs must have a minimum two year track
record of successfully claiming tax relief under gift aid before
becoming eligible to make claims under the scheme. They will
also have to continue making gift aid claims while they are
claiming under the new scheme. The new scheme is based on
cash receipts and so records will be limited and the scheme will
be open to fraud; stipulating that claimants operate gift aid
correctly will serve as an initial requirement aimed at ensuring
that they also operate the new scheme correctly.
3.
The new scheme allows certain charities to claim on more small
donations than the main limit of £5,000 if they carry out
charitable activities in a community building and meet certain
conditions. The community building rule ensures that charities
carrying out similar activities, either through independent
charities under an umbrella organisation or as local groups of a
larger charity, have similar entitlements to top-up payments. A
separate rule ensures that charities that are connected qualify
for just one allocation of the £5,000 maximum limit between
them so that there is no incentive for charities to fragment in
order to qualify for extra allocations of the maximum limit
4.
The new scheme will be administered using the same rules as
those that apply to claims for tax relief under gift aid. The new
scheme is being legislated in a programme Bill because it will
not be a tax relief and so cannot be legislated through the
Finance Bill. However charities and CASCs may not be aware of
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these technical differences; they will make their claims under
the new scheme and under gift aid using the same procedures
and form.
Provisions for delegated legislation
Clause 5(8): Meaning of “connected”
The delegated power
5.
Clause 5(8) enables the Treasury by order to change the
circumstances in which a charity is connected with another
charity. The connected charities rule is needed in order to
support the rule in clauses 4 and 9, which is aimed at
preventing abuse of the maximum donations limit for a charity
for a tax year.
Why this is left to delegated legislation
6.
Clause 5 has been drafted to take account of the particular
circumstances in which charities may be connected with each
other. It contains detailed rules, largely based on a modified
application of the main connected rule for income tax, but also
contains a specific rule for trusts to reflect the large number of
charities which are trusts. Nevertheless, it remains possible
that some charities may exploit the rules by using charities
which are in fact connected and managed by a small number of
individuals, yet find a way round the connected rule as drafted.
Conversely, it may be that the rules prove to be too harsh in
practice. It will only be possible to identify whether the rules as
drafted meet their aim once the scheme is running and HMRC
has been able to monitor charities’ behaviour. The power will
enable Treasury to adjust the rules to ensure they are set at the
right level.
Parliamentary procedure
7.
An Order under clause 5(8) may not be made unless a draft of
the instrument has been laid before and approved by a
resolution of the House of Commons (clause 17(2), the “draft
affirmative procedure”). The Government considers that any
tightening or loosening of the connected charities rules may
have serious consequences across the wider charity sector,
especially for the larger charities, and that therefore the
affirmative procedure is justified.
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8.
Orders and regulations under the Bill are, by clause 17(2),
generally made subject to a procedure in the House of
Commons only. This is because the powers may only be
exercised for purposes which are financial in nature. It is felt
that the powers under the Bill will be subject to adequate
control in the Commons in the same way as other tax and
financial provisions coming under the powers of the Treasury.
Clause 7(3): Meaning of “running charitable activities in a community
building”
The delegated power
9.
The clause enables the Treasury by order to vary up or down
the number of occasions and the number of people required in
clause 7(1) for a charity to be running charitable activities in a
community building.
Why this is left to delegated legislation
10.
Clause 7(1) specifies the minimum number of people who must
attend charitable activities carried out by a charity in a
community building, and the minimum number of occasions
when the activities must take place each year in order for a
charity to be eligible to claim a top-up payment on small
donations made during the charitable activities, in addition to a
top-up payment on donations made elsewhere. The minimum
figures (10 people on 6 occasions) were derived from rough
assumptions on how large a local group might be and how often
it might meet.
11.
Respondents to the consultation were concerned the numbers of
people attending might be set at too high a level. Conversely it
is possible that some charities may exploit the rules by meeting
at a number of different buildings to increase the maximum
allocation of small donations to which they are entitled. It will
only be possible to identify the right levels for each of the
conditions once the scheme is running and HMRC has been
able to monitor charities’ behaviour. The power will enable the
Treasury to adjust the limits to ensure the conditions are set at
the right level.
Parliamentary procedure
12.
An Order under clause 7(3) is subject to the draft affirmative
procedure. The Government considers that a change in the
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requirements for running charitable activities in a community
building, particularly one aimed at avoiding abuse may have
serious consequences across the wider charity sector, especially
for the larger charities, and that therefore the affirmative
procedure is justified.
Clause 8(5) and 8(6): Meaning of “community building”
The delegated power
13.
Clause 8(5) enables the Treasury to provide by order for cases in
which a building, or part of it, is or is not to be treated as a
community building or part of a community building; also to
provide for cases when two or more buildings are to be treated
as a single building for the purposes of the Act. By clause 8(6),
the cases provided under subsection (5) may be specified by
reference to a description of a building, its use or any other
circumstances and by reference to when a building is used.
Why this is left to delegated legislation
14.
Charities will be able to claim extra top up payments on small
donations received in the course of carrying out charitable
activities in a community building where certain conditions are
met. So for example, while a charity may be entitled to claim a
top-up payment on up to £5,000 of small donations collected in
the street, a charity carrying out charitable activities in say, 100
community buildings would be eligible to a top-up payment of
up to £500,000 of small donations. There is therefore scope for
abuse of the rule by unscrupulous charities carrying out
activities in a number of buildings, simply to increase their
entitlement to payments.
15.
Given the beneficent aim of extending donations to deserving
charities, the definition of community building in clause 8(1) to
8(3) is deliberately drawn quite narrowly, and clause 8(4)
contains a further limitation aimed at preventing unjustified
proliferation of top-up claims by use of interests in land on
which there are several buildings. It may be, therefore, that
some deserving charitable activity in buildings is excluded by
the definition. The Government believes it may be possible that,
when the rule comes to be applied and once there is more
evidence of how effective the limited definition works, hard cases
may emerge. Certain charitable activity may be unintentionally
excluded, and yet other activity may emerge that goes beyond
the policy aim. So it is envisaged that certain classes of
building, or perhaps buildings in close proximity, or buildings
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used in certain ways at certain times may need to be added to
or removed from the definition.
16.
The power in clause 8(5) and (6) enables the Treasury to deal
with these cases without the need to resort to primary
legislation. This is particularly important in relation to the scope
for abusive cases, and experience of the related gift aid tax relief
regime has led the Government to conclude that this is an
appropriate area for the use of delegated power by the Treasury.
Parliamentary procedure
17.
An order under clause 8(5) and (6) is subject to the draft
affirmative procedure. Both this power and the power in clause
7(3) enable the Treasury to make changes to key requirements
for charities to satisfy the eligibility tests in relation to
community buildings. The Government considers that the
serious consequences which may result for charities means that
the affirmative procedure is appropriate.
Clause 11: Management of top-up payments
The delegated power
18.
Clause 11 confirms that the top-up payments scheme is under
the management of HMRC and gives HMRC wide powers to
apply and incorporate provisions which apply to gift aid claims
to relief from income tax and corporation tax. HMRC may by
regulations provide for the administration of top-up payments.
It may apply or incorporate tax provisions providing for payment
of interest, provision of information, appeals. It may also
provide for the serious tax provisions on civil penalties, criminal
offences for false or misleading information, and powers of entry
on land and to enforce payment, for example by distraint
against goods. Any regulation providing for the application of a
tax provision creating an offence or imposing a civil penalty may
not increase the maximum amount of punishment of penalty
due.
19.
Regulations made under clause 11 may, under clause 12(6) and
13(7), include regulations in connection with clause 12 (charity
mergers: new charity taking over activities of one charity) and
clause 13 (charity mergers: new charity taking over activities of
several charities). Clause 12 provides for the history of a charity
that changes its form to become a new charity in law (for
example upon incorporation) or whose activities are taken over
by a new charity to be taken into account in relation to the new
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charity’s eligibility to claim under the new scheme. Similarly,
clause 13 allows for a new charity formed by the merger of two
or more charities to take on the history of the charity with the
shortest track record prior to the merger. New charities must
make gift aid claims in two consecutive tax years before
becoming eligible to claim under the new scheme. Clause 12
enables a newly formed charity to rely upon the history of its
predecessor, so that if the original charity was already entitled
to claim under the small donations scheme, its successor will be
immediately entitled to claim. Similarly, clause 13 allows that if
all pre-merger charities were eligible to claim under the scheme,
the new charity will be as well. Charities will have to apply to
HMRC to certify, amongst other things, that in their opinion the
purposes of the new charity are substantially similar to the
purposes of the old charity (clause 12) or charities (clause 13).
Regulations will be made under clause 11 to administer this
process.
Why this is left to delegated legislation
20.
The purpose of the general provision in clause 11, supported by
the specific instances in clauses 12(6) and 13(7), is to enable
HMRC to make regulations to provide an administrative
framework to the new scheme so that it applies as intended as
an additional “top-up” to gift aid relief covering small donations
which cannot come within that relief. However, unlike gift aid
there is no link between the donor’s tax affairs and the amount
paid to the charity. This means that the scheme is not a tax
relief, but it has to fit into a framework already used by charities
to claim such relief, in order to impose as little extra
administrative burden on the charities as possible. If the small
donations scheme were a tax relief, it would naturally fall to be
administered in the same way as gift aid, using the provisions in
the Tax Acts that provide generally for administration.
21.
Since there is no check upon top-up claims deriving from a link
between the donor and the payment to the charity, the need for
some control of the scheme dictates that a full administrative
framework must be legislated.
Top-up claims must be
administered, including provision for appeals where such claims
are refused. Overpayments (clause 10) also require provisions
allowing HMRC to assess the amount overpaid to the charity
and to recover it and enforce recovery. The tax provisions
underpinning a claim, its payment and recovery of
overpayments are extensive and are set out in primary
legislation. To include the administrative framework in the new
Bill would increase its length considerably and, it is considered,
unnecessarily. Regulations will contain detailed technical rules
that broadly mirror the equivalent rules applicable to gift aid,
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and that it is therefore considered more appropriate to leave this
detail to delegated legislation, rather than taking up more
Parliamentary
time
by
including
the
administrative
arrangements in the Bill. It would also require regular new
primary legislation in order to align the administrative
framework for the scheme with the tax administration
framework which may change annually through the Finance
Bill. Further, HMRC may need to refine the provisions made
under the regulations over time as the scheme is established.
Parliamentary procedure
22.
The tax provisions to be applied and incorporated include
powers of entry onto land, enforcement of payment, civil
penalties for failure to provide information and criminal offences
for providing misleading information which could lead to top-up
payments from HMRC through abusive claims. It is considered
the seriousness of these provisions means that the draft
affirmative procedure is appropriate. Separate and different
procedure for the somewhat less serious administration
provisions which may be made by virtue of clause 12(6) and
clause13(7) is not felt to be justified, particularly as the exercise
of these powers is inevitably going to be in the same instrument
as those under clause 11.
Clause 14: Power to alter specified amount etc
The delegated power
23. The clause gives the Treasury power to amend a number of the
monetary and numerical values in the Bill. The “specified
amount” (currently £5,000) is the overall maximum donations
limit for a charity for a tax year (clause 1(6)). This figure is used
in determining the maximum donations allowed for the
purposes of the “connected charities” and “community building”
requirements in clauses 4(3)(a), 6(3)(b) and (4)(b) and 9(4)(b),
and the power in clause 14(1) to amend the specified amount
applies in relation to these other provisions.
24. The matching rate in clause 1(4)(a) is the level at which a charity
must claim on gift aid donations in proportion to claims under
the new scheme. This is currently set at a level such that a
charity can claim on ten times the amount of small donations as
the amount they have claimed on gift aid donations. Clause
14(2) and (3) give the Treasury the power to vary this amount
and remove or reinstate this rule.
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25. The eligibility criteria in clause 2 set out the requirements a charity
must meet to be determined as eligible for this scheme. Clause
14 (4) give the Treasury the power to amend the clause, such
that any of the criteria within it can be varied, removed or
reinstated. Clause 14(5) limits the amendments under 14(4) to
ensure that the condition in clause 2(1)(a) cannot be removed.
26. Clause 14(6) gives the Treasury the power to amend the amount of
the “small cash payment” (currently a maximum of £20) in
paragraph 1 of the Schedule to the Bill. This paragraph sets
out one of the conditions which, by virtue of clause 3(1), a gift
made to a charity by an individual must meet in order to qualify
as a small donation.
Why this is left to delegated legislation
27. Both the specified amount and the maximum amount of an
individual small cash payment are set against the background
of current economic considerations and may need to be
amended in order to reflect changing circumstances. As the
scheme is not part of the tax regime, there is not the regular
opportunity to amend these amounts in the Finance Bill, so
were this power not included in the Bill there would need to be
additional primary legislation solely to cater for uprating or
decreasing these amounts.
28. Both the matching and eligibility criteria are safeguards built into
the Bill to protect the scheme against fraud. As the Bill is
introducing an entirely new scheme, it may be found that the
operation of it varies somewhat from what has been expected. In
particular, the fraud rates experienced by the scheme may be
considerably higher or lower. Therefore these powers enable the
Treasury to amend the criteria in response to the operation of
the scheme in practice. In order to retain operational flexibility,
it is considered more appropriate to have these powers available
than to require primary legislation.
Parliamentary procedure
29. Individually the overall maximum monetary amounts involved are
not large in general terms, but they are key to the scheme.
Similarly, the matching rate and eligibility criteria are important
for determining whether charities can claim under the scheme,
and for keeping the levels of risk at a manageable level. Whilst
the Government considers a requirement for primary legislation
solely to amend these criteria is not justified, particularly where
the amendment relates to an uprating for inflation, it is
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considered that the draft affirmative procedure is appropriate to
the exercise by the Treasury of the power and will provide a
suitable level of parliamentary scrutiny.
Clause 21: Commencement and transitional provision
30.
Clause 21(6) deals with transitional provisions and provides
that the Treasury may by order make transitional provision in
connection with the coming into force of the Bill.
No
parliamentary procedure is attached to the power, as is common
for transitional and commencement powers.
Her Majesty’s Revenue and Customs
20th June 2012
Revised 22nd November 2012