Gift Aid rules governing donor benefits

Gift Aid rules which govern the benefits that charitable donors can receive when making a eligible donation have been consulted upon by The Treasury. Under current Gift Aid rules, donations up to £100, the benefit value can equate to a total of 25% of the donation; for donations between £100 and £1,000, the value of benefits is capped at £25, while for donations over £1,000, the benefit value can equate to a total of 5% of the donation, to the annual maximum value of £2,500.

The consultation, looked into whether calculating the ‘net’ value of donations on which gift aid can be claimed by deducting the cost of providing donor benefits from a charity’s gross donation receipts would achieve genuine simplification of the Gift aid rules? Other alternatives, such as removing the relevant value test and aggregate value test and operating the Gift Aid rules donor benefits through an extension of the split payment approach allowed under an extra statutory concession.

The ‘net’ approach, can often be seen as being complex to operate. It can also be inequitable to offset the full cost of all benefits, including those provided to donors of funds ineligible for Gift Aid. Removing the monetary thresholds altogether and replacing them with one of the alternatives outlined would mitigate the administrative burden on charities.

However there is little agreement on the question of reducing the number of monetary thresholds. There is significant support for moving to a percentage-based threshold system, with nearly three-quarters of respondents in favour, but these responses were often caveated (most usually in relation to the level at which the threshold should be set and the method used. A significant majority of respondents felt that a disregard for low value benefits (below £3) would be a simplification.

An anomaly in the current system of thresholds that allows twice the value of benefits for an increase in the donation made of just £1 (where the donation increases from £1,000 to £1,001).

Further consultation

The current maximum annual benefit value of £2,500 would continue to apply in all cases.

The current 25% limit on benefits for donations up to £100 would also remain unchanged.  For donations over £100, the upper limit for the £25 threshold would be reduced from £1,000 to £499 and the 5% threshold would apply to donations of £500 and over.

The government would be likely to set the single threshold at a rate in the region of 10% if accompanied by a disregard for low value benefits or in the region of 15% without a disregard. It also believes there could be significant merit in this approach.

Therefore, proposing an alternative which would involve calculating the donor benefits allowed for a single donation using two different percentage rates, i.e. applying one percentage rate to the first element of a donation and a different rate to any amount exceeding this. The total of these would be the permitted limit to the value of donor benefits.

Upon this basis, the government would be likely to set rates in the region of 25% of the first £100 of a donation, plus in the region of 2% to 4% of any additional amount donated if a disregard operated alongside, or 5% of any additional amount donated if not accompanied by a disregard.

For more advice and detail regarding gift aid rules in 2016, we welcome you to contact our Buxton accountants, Derbyshire