Lord Young of Cookham
Main Page: Lord Young of Cookham (Conservative - Life peer)Small Charitable Donations and Childcare Payments Bill
Lord Young of Cookham ExcerptsMonday 12th December 2016
(7 years, 4 months ago)
Lords ChamberRead Full debate Small Charitable Donations and Childcare Payments Act 2017 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 14 November 2016 - (15 Nov 2016)
Lord Young of Cookham
Lord Young of Cookham (Con)
My Lords, the Small Charitable Donations and Childcare Payments Bill is a short Bill—just nine clauses—and a technical Bill, but it is not unimportant. Indeed, contained within it are positive and pragmatic changes intended to simplify and improve the operation of both the gift aid small donations scheme and the tax-free childcare scheme.
The charity sector is one of this nation’s great assets. Many noble Lords will have experience of working for charities or serving as trustees and patrons. They will therefore be familiar with the important work charities do, as well as the challenges and pressures they face. Of course, noble Lords serving on the Select Committee on Charities are currently gathering evidence on charity governance and the challenges of sustaining the charity sector.
The Government recognise the importance of the charity sector and it is for that reason that they provide support to charities and donors through a generous package of tax relief worth more than £5 billion last year. This is up from £4.7 billion in 2014-15 and £4.4 billion in 2013-14. One of the most valuable tax reliefs available to charities is gift aid, which was worth around £1.3 billion last year. Gift aid allows charities to reclaim from HMRC the basic rate of tax paid by individuals on their donations.
To claim gift aid, a charity must obtain a declaration from the donor confirming their status as a UK taxpayer. This process works well, particularly for large donations, and I am sure noble Lords will be pleased to hear that gift aid repayments to charities continue to grow. But the Government recognise that there are circumstances where it is just not practical or feasible for fundraisers to stop donors and obtain a gift aid declaration, leading to a gap in the amount of gift aid claimed. The gift aid small donations scheme is intended to help address this gap by allowing charities to claim a gift-aid-style top-up payment on small cash donations.
Noble Lords present may recall that, during the passage of the Small Charitable Donations Act 2012, the Government committed to a full review of the gift aid small donations scheme after three years of operation. The Bill is the result of that review and the Government have listened to the charity sector. Indeed, the vast majority of the provisions within the Bill were originally put forward by the charity sector itself.
The Bill will make the gift aid small donations scheme simpler and more flexible so that it can benefit a greater number of charities and donations. I pay tribute to the hundreds of charities, representative bodies and others that took the time to engage with HMRC during the course of the review. I am pleased to report that the reforms in the Bill are forecast to benefit charities by up to £15 million per year. The new rules will particularly benefit the up to 9,000 new charities that apply for recognition by HMRC each year.
The Bill is intended to make life easier for charities. It will therefore substantially simplify the eligibility criteria of the gift aid small donations scheme, making it much easier for smaller and newer charities to access top-up payments. Charities will no longer need to wait for two years before making their initial claim, nor will they need to have claimed gift aid in at least two out of the previous four tax years, as they do currently.
Removing these rules will leave just one remaining condition that charities must meet to access payments: the gift aid matching rule. This rule requires charities to claim gift aid of £1 for every £10 claimed under the gift aid small donations scheme. It is necessary to retain this rule to maintain a link between the small donations scheme and the full gift aid scheme. A link to the main scheme is important, both as a means of incentivising charities to engage with gift aid and to allow HMRC to ensure that charities comply with the rules. It is the Government’s view that these changes strike the right balance between simplifying the scheme—making life easier for charities—and maintaining an effective deterrent against the dishonest minority who would seek to exploit the rules.
The Bill also relaxes and clarifies the operation of the community buildings rules. These rules are intended to deliver fairness and broad parity of treatment for charities structured in different ways. Without these rules some charities would be able to claim vastly more than others for no reason other than differences in the way the charities are structured. For many charities, the community buildings rules work very well. For example, many local churches have been able to benefit from the rules. Indeed, the Archbishops’ Council recently commented:
“Parishes were able to claim record levels of Gift Aid, with a significant part of this increase arising from the use of the Gift Aid Small Donations scheme”.
This is to be welcomed and we of course want churches to continue to benefit from the valuable extra income provided by the gift aid small donations scheme.
However, it has also become clear that other charities have been less able to fully utilise their community buildings allowances, most notably Scouts and other uniformed groups which, although based in community buildings, undertake most of their collections outside the building. The Bill therefore relaxes the community buildings rules to allow charities to include donations collected outside the building but within the local area under their community buildings allowance. This change could benefit any local charity that regularly meets in a community building, such as a village hall or community centre. There is no requirement for the charity to own the building outright.
The Bill will also future-proof the gift aid small donations scheme. The scheme is intended to allow charities to claim a gift-aid-style payment on small, fleeting donations, such as those placed into a collection tin or church offering. However, noble Lords will be aware that cash transactions are declining as electronic payments become ever more prevalent. The Government have already worked with the charity sector to put processes in place for claiming gift aid on most forms of electronic donations, such as SMS and online.
During the review of the scheme, charity representatives demonstrated examples of the innovative new contactless collection technology being developed. The Government accept that in many ways these donations are analogous to the small cash donations made on the spur of the moment by passing individuals. The transactions are small, almost instant, and there is very little time to stop the donor to solicit a gift aid declaration. The Bill will therefore ensure that the gift aid small donations scheme remains relevant for years to come by opening it up to donations received using contactless collection terminals.
As I have explained, the Government are taking action to simplify the gift aid small donations scheme so that more charities are able to benefit. Last year 21,300 charities claimed a total of £26 million in top-up payments, a not insignificant amount, but we accept that it is lower than forecast. HMRC will therefore undertake a targeted communications exercise to promote greater awareness of the gift aid small donations scheme.
I shall now address the tax-free childcare provisions contained in one clause of the Bill. This clause is concise and technical but it nevertheless effects important changes and reflects the elements of the tax-free childcare scheme which make it innovative and cutting-edge. The Government brought the foundation stone of this ambitious scheme, the Childcare Payments Act, before noble Lords in 2014. Secondary legislation followed soon after and now, in 2016, the Government are testing tax-free childcare with parents and preparing to launch it in early 2017. Tax-free childcare will be rolled out gradually and responsibly, with parents of the youngest children being invited to join the scheme first until it is available to all eligible parents by the end of 2017.
Around 2 million families will be eligible for tax-free childcare in the first year and may access up to £2,000 of government support with childcare costs per child per year or £4,000 for disabled children. Parents will apply through a straightforward online process and open a childcare account for each child. They may then pay money into their accounts, and for every £8 a parent pays in, the Government will pay in an additional £2. The balance may then be spent on registered childcare needed to allow parents to work.
I now turn to the substance of the clause. The first change relates to the mechanism by which parents retain access to the scheme by reconfirming each quarter that they remain eligible to receive tax-free childcare. A successful reconfirmation ensures access to government support for the coming entitlement period. Entitlement periods standardly last for three months, but HMRC may vary them when new accounts are opened or to ensure alignment of dates—for instance, when a further child is added or when a new household is formed. The Bill will allow greater flexibility over how entitlement period dates can be amended. This will ensure that parents’ childcare account dates will align so that the number of times they need to reconfirm their eligibility for tax-free childcare can be minimised.
The other changes affect how parents who are dissatisfied with HMRC decisions can ask for them to be reviewed. They will establish standard, online forms that parents can use if they want to query a decision. This will make the process a lot more straightforward and convenient and makes for a truly digital scheme. However, we will still make sure that everyone is able to ask for a review. Those who, for any reason, are unable to use the online form will still be able to raise their queries using the non-digital channels that they used in applying for the scheme.
The Bill will make the gift aid small donations scheme more flexible and generous so that it can benefit a greater number of charities and donations. It will also make it easier for parents to interact with tax-free childcare. This Bill is good news for charities and for working parents, and I commend it to your Lordships.
Lord Young of Cookham
My Lords, I am very grateful to all those who have taken part in this short debate for their contributions and for their broad support for the objectives of the Bill. I have noted, and will touch on, some of the very helpful suggestions that have been made.
One of the questions was when there would be an opportunity to have another look at the scheme. All tax policy remains under constant review, and the scheme we are discussing is no exception. In addition, HMRC publishes a national statistics package every year, providing a wealth of data, including the total amounts claimed under the gift aid and small donations schemes. This transparent approach allows interested parties to monitor the take-up and effectiveness of charitable tax reliefs constantly. But all suggestions made during the debate will of course be looked at by the Ministers and officials who have responsibility for taking this important policy forward.
Quite a lot of the comments were focused on the link between the small donations scheme and gift aid. There are a number of arguments for nudging people towards gift aid wherever possible. First, the gift aid scheme is not cash limited, whereas the small donations scheme is, so the more people can put on the gift aid side, the more people will be outside the cap. Also, with gift aid the charity gets a list of the donors who support it, which obviously does not happen with the small donations scheme. There is also the issue of safeguards against fraud, which I shall come to in a moment.
On the issue of publicity for the scheme, a number of noble Lords commented on the fact that the take-up has not been as high as we, or they, would have wished. As I said, we will publish the scheme, and I take note of the comment by my noble friend Lord Hodgson that publicity should not come in brown envelopes marked “HMRC”, which strike terror into the hearts of most citizens. We should find a more user-friendly way of publicising details of the scheme.
A number of noble Lords suggested that the matching requirement might be dropped. This was raised during the review that the Government undertook. The matching rule was not identified as an issue in the vast majority of responses. Even the charity finance groups and the NCVO’s own call for evidence response acknowledged that only 5% of the charities that they surveyed claimed no gift aid, which does not wholly support the assertion that the matching rule is a significant barrier for most charities. The argument was also put forward that it was excessive and that one way around this would be to have a fixed amount. HMRC requires a regular pattern of gift aid claims to be able to ensure that a charity is and continues to be compliant with the main gift aid scheme. It is a sort of proxy for compliance, having the link between the small donations scheme and gift aid. The organisations continuing compliance with gift aid and HMRC’s ability to check a number of claims is the closest proxy to help to assure compliance under the new scheme. Requiring a number of gift aid claims to be made, which includes the provision of donor declarations alongside claims for top-up payments, increases the protection against fraud and abuse, which I shall come on to in a moment.
The scheme is at risk from fraud. The Government believe that a matching requirement is an important anti-fraud element of the scheme. Even if a charity appears to be compliant for the first few years or with the first claim, changes in charity personnel can affect an organisation’s attitude to compliance, so HMRC will continue to need some evidence on which to base its assessment of the risk that the charity poses in relation to the scheme. There are some unfortunate examples of individuals exploiting charitable status for criminal purposes. In May this year three individuals were jailed for a total of 22 years for defrauding HMRC of £5 million in fictitious gift aid claims; in April three individuals were jailed for a total of 11 years for submitting fraudulent gift aid claims totalling £340,000; and in January two individuals were jailed for a total of five years for attempting to fraudulently claim £500,000 in gift aid from HMRC. This demonstrates that there is some risk of abuse in the scheme.
I was pressed by my noble friend Lord Hodgson to extend the gift aid small donations scheme to include other forms of payment—direct debits, cheques and credit card payments. The aim of the scheme is to allow charities and community amateur sports clubs to claim a gift aid-style payment on cash donations received in circumstances where it is difficult or impractical to collect donors’ details. Giving by cheque means that the donor is giving their details to the charity, and the extra amount of information needed to make a gift aid declaration is relatively small. If it is practical for a donor to write a cheque, it seems reasonable to assume that it is practical for the donor to make a gift aid declaration at the same time. When a charity has an ongoing relationship with a donor, you should use gift aid if at all possible.
Lord Hodgson of Astley Abbotts
My noble friend is doing a splendid job with a brief that is not entirely his. The Revenue always produces these stupendous figures—£5 million here and £5 million there—but we are talking about an £8,000 maximum per charity, so there is a limit to the extent to which bad boys can run away with the ball. I am not asking for a response—just to place on the record that the Revenue is being unfair to my noble friend by talking about £5 million being cheated out of charities when we are talking about a very limited scheme. It was an unfair speaking note that it gave my noble friend.
Lord Young of Cookham
I take full responsibility for any speaking notes that I deliver. If one looks at some possible structures, you can have a charity with a number of community buildings and each one could claim £8,000—so it is not necessarily capped at £8,000. Depending on the structure of the charity, it would be possible to claim a much larger figure. I take on board the point that my noble friend has made.
Progress is being made on making SMS slightly more user-friendly. SMS text giving is an easy way for donors to give to charity; donors simply send a short code to a six-digit number to donate a set amount via their phone bill. There is an established process for donors to gift aid SMS donations. Following the initial message, a reply is sent to the donor, thanking them for their donation and asking for their name, house number, post code and confirmation that they are a UK taxpayer. If the donor replies with this information, gift aid is added to the donation. HMRC is working closely with the sector and we are introducing new legislation in April 2017 to simplify the process for claiming gift aid on donations made through digital intermediaries.
Lord Stevenson of Balmacara
The Minister is saying that there will be a legislative initiative in the forthcoming year, reflecting on the text side of things. A number of noble Lords raised the question of whether that clause would be applied. I take the point that a text message contains some metadata which would be useful if you wanted to pursue gift aid. I still do not get the point made by the noble Lord, Lord Hodgson, about why, if you are going to accept that for gift aid, we cannot see it applied to the SDS scheme as well. It is a way of transferring cash but, unless you have very agile, slim and slender thumbs, it is not easy to do all the stuff that you are asking for. It would fit perfectly into the idea of being additional cash.
Lord Young of Cookham
None the less, there is an advantage in getting it scored as gift aid rather than as a small donation, because there is a cap on small donations but not on gift aid. It is in the charity’s interest to try and nudge donations, wherever possible, down the gift aid route rather than the small donations one. The noble Lord asked about the take-up of the scheme and said that it might be too restrictive and complex. Some 21,300 charities took advantage of the gift aid small donations scheme in 2015-16, claiming a total of £26 million. Take-up of the scheme continues to grow year on year, but I take the point that it has come in below the forecast. That is why we are removing a number of eligibility requirements and relaxing the community buildings rules, which will make it simpler and easier to claim, particularly for smaller charities, and make it possible to score donations that are not collected in community buildings but in the local area. I hope this will help a number of charities which do not claim at the moment to do so.
I turn to the point made by my noble friend Lord Hodgson about fraud. Although the headline maximum payment of £2,000 is modest, fraudsters can hijack or set up multiple charities and claim multiple amounts. The community buildings rule enables some charities to claim significant amounts of top-up payments in their own right, so it can potentially add up. In any event, we have a duty to ensure that public money is spent properly. Any amount of taxpayers’ money going to fraudsters is a significant issue. The noble Baroness, Lady Barker, suggested that we should abolish gift aid and—if I have understood her correctly—give charities a top-up on all donations received. This would be a radical reform, but it would not be welcomed by many in the charity sector. In fact, in 2010, charity representatives on HMRC’s gift aid forum considered whether gift aid should be reformed, including removing the link to individual tax contributions. However, they concluded that gift aid should remain as a tax relief. We are open to representations on how we can improve gift aid but are not currently considering reforms along those lines.
Finally, the Government are anxious to continue general support for charities. Some 73% of adults give money to charity in the average month. We are the most generous nation in Europe, so there is much to celebrate. We are offering incentives to encourage giving: we provide a generous package of tax reliefs for charities and donors which was worth £5 billion last year. The Government are proud to support the Grow Your Tenner fundraising campaign, which starts today. We have contributed £245,000 to match donations from the public through the campaign to local charities and community groups. We funded the small charities fundraising training programme to help small charities build the skills needed to fund-raise effectively and later this year we are going to hold a local charities day to celebrate and promote engagement with local charities and community groups.
If I have not touched on all the points made—and I am conscious that I have not—I will write to noble Lords dealing with the issues they raised. In the meantime, I thank them for their suggestions. Even if I was totally persuaded by their arguments, this is a money Bill so, as the noble Lord, Lord Stevenson, implied, there is nothing we can do about it. I hope, on that basis, we can make progress with the Bill. I beg to move.