Gift Aid and relief on donations

Gift aid and other tax reliefs, worth over £1billion to charities, have not been proven to actually increase the amount of money given to good causes, according to a report released by the National Audit Office (NAO).

The NAO report, entitled Gift Aid and relief on donations, has found that HMRC and Treasury have no evidence to show that these tax incentives have actually incentivised more philanthropy and emphasises the significant cost to HMRC of administering the reliefs, as well as the losses to the Exchequer associated with avoidance schemes.

While NAO acknowledges the importance of gift aid income to charity, it notes that this income has not changed in real terms over the last 13 years, from £1.06billion in 1999/2000 to £1.04billion in 2012/13, whereas the value of gift aid to donors has increased from £130million to £940million over the same period.

Gift aid and other charity reliefs, NAO reported, cost the HMRC £9.7million to administer in 2012/13 and accounts for about 2 percent of all charity income.

Research released earlier this month by Blackbaud suggested that plenty of charities do not claim gift aid at all, with 42 per cent of the 600 plus charities that participated in the study claimed not to. The 2012/13 financial year represented a second year of decline in the total amount of gift aid claimed by charities.

The NAO report was concerned by the compliance challenge faced by HMRC. No specific data is available, but it is estimated that the HMRC loses around £170million a year from the abuse and miscalculation of charitable tax reliefs. There is a further £217million in tax at risk by eight marketed avoidance structures, which the HMRC is currently challenging.

HMRC believes it recovers £44 of tax revenue for every £1 it spends on compliance activity.

The NAO report was also critical of the lack of evidence held by the HMRC and Treasury that government has managed to encourage take up of tax incentives, or indeed that reliefs have increased donations to charities. A review conducted by HMRC in 2005 also failed to find evidence of any such impact.

NAO makes several recommendations in its report, including that the HMRC needs to better understand its customers in the charitable sector in order to improve its ability to identify risk.

HMRC plans to undertake a full assessment of the losses for charity tax reliefs in autumn 2013. The Audit Office recommendations focus on improving communication and the evidence base on gift aid take-up among charities and donors.

The Government this year opened a consultation into gift aid and digital giving, but many in the charity sector believed the proposals fell short of the reforms needed to simplify and improve the system. The government has not yet responded to the consultation.

To download the NAO report visit