Most of us have used Gift Aid. You’re sponsoring a friend for a fun run or contributing to an office fundraiser, and you’re asked to tick a box online to boost your donation by 25 per cent. All you have to do is confirm that you’re a UK taxpayer. A tenner becomes £12.50, at no additional cost to you. Couldn’t be easier.
But for higher earners, who are responsible for the bulk of British philanthropy, the process isn’t so simple. Anyone earning over £150,000 needs to fill in forms, declare their donations, and eventually receive a rebate. A recent Onward report called for reform, simplifying and automating Gift Aid to increase the incentive to give. Lucy Frazer, the Culture Secretary, is reportedly lobbying the Treasury to consider these proposals. But in the midst of a cost of living crisis, why do charitable tax incentives for the wealthiest matter?
The principle of Gift Aid is simple. If you are giving money to charity, then the government won’t tax you on your donation. HMRC will already have taken 20p out of every £1 you earn through PAYE, so Gift Aid is just them routing this to the charity. If you’re a higher or additional rate taxpayer then you’ve paid 40 or 45p out of every pound, meaning that as well as the top-up given to your chosen charity, you’re entitled to a rebate.
This makes our tax incentives for charitable giving almost as generous as those in the US – in both countries, you can “write off” the taxes due on philanthropic contributions. The major difference is that in the UK the relief is granted post tax collection, and your chosen charity also benefits from a donation top-up.
And this is where the challenge kicks in. In the UK, the charity top-up and rebate requires donors to tick the Gift Aid box at the point of donating, and later declare their donations on their self-assessment forms. This added layer of complexity means that too few donors are using Gift Aid. Over a third of all individuals do not know that charities receive a 25 per cent top up, and almost 85 per cent of individuals who earn above £50,000 are unaware of Gift Aid rules.
So what impact might automating Gift Aid have? Onward’s research found that simply removing the inconvenience associated with making a Gift Aid donation would increase donations by up to £520m. And if coupled with other interventions it could go further in closing our giving gap with the US, which currently stands at £19bn. The truth is that the richest in Britain aren’t pulling their philanthropic weight: the top 10 per cent of earners donate at half the rate of the poorest 10 per cent.
The technology to automate Gift Aid already exists. Platforms such as Swiftaid allow people to make their donations, authorise Gift Aid on them, and claim their rebate straight away. This tech also lets them opt-in to Gift Aid on all donations made in the same tax year, see that charities receive their full donation immediately, and exempt people from having to declare donations on their self-assessment forms.
Of course, automation would have an impact on the Treasury. Uncollected Gift Aid currently stands at £560m each year, which would be released back to donors under a streamlined system. But, crucially, releasing these funds can unlock greater giving – more individuals might donate, and donate more, generating an estimated extra half a billion that could be targeted at communities most in need.
There aren’t many policies that put money back into taxpayers’ pockets, unlock further funds for good causes and can be delivered with existing technology. Our charitable incentives are well designed but poorly executed. Ministers ought to fix them.
Read the full Onward report on Gift Aid, including a foreword from Lucy Frazer, here.
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