Charities: Changes to Gift Aid

When does the scheme start?
The scheme started from 6 April 2013.

What are small donations?
Any single donation of no more than £20 in notes or coins. It does not have to be in sterling but must be collected in the UK and paid into a UK bank account. It will cover things like church offerings, street collections, house to house, bottles on a pub counter, etc. It is not likely to cover cash sales receipts because the donor will be receiving something in return. It specifically does not apply to membership fees.

How is the top-up calculated?
Just like Gift Aid, so that with a basic income tax rate of 20%, cash donations of £1,000 will receive a top-up of £250.

What is the maximum sum which can be claimed?
The maximum sum for the basic small donation claim (called the remaining amount) will be the lower of £5,000 or 10 x the Gift Aid claim for the same tax year, so in order to obtain the maximum figure the charity will need to have claimed Gift Aid on donations of at least £500 in the same year. Put another way, if the charity does not claim Gift Aid at all then it will not be able to claim the top-up.

Will every charity receiving cash donations be able to make the claim?
No. The charity must be an ‘eligible charity’ which means it must fulfil two basic conditions.

  • It must not be a new charity. The requirement is that the organisation must have been a charity throughout the two previous tax years, so a charity which starts in June 2013 will not be able to come into the scheme until at least 2016/17 because it will need to run through 2014/15 and 2015/16 to create its two qualifying years .
  • It must show that it has a Gift Aid compliance history. This has two aspects:
  • it must have made successful Gift Aid claims (i.e. HMRC have repaid tax on some of the claim) in at least two out of the four previous tax years (it doesn’t matter for which actual year it has claimed); and
  • there must not be two consecutive years for which no claim was made, otherwise years prior to that cannot be counted. For example, if a charity has made Gift Aid claims for 2009/10 and 2011/12 but not 2010/11 and 2012/13 the test is met. If, however, it made a claim in 2009/10 and 2012/13 only, then because 2010/11 and 2011/12 have been missed it will not qualify and the earliest it will be able to come into the scheme will be 2014/15, provided that it makes a Gift Aid claim in 2013/14.

It is important to note that if at any time HMRC impose a penalty in respect of either a Gift Aid claim or a small donations claim, the charity will be disqualified from the small donations scheme for that year and the following year.

And that’s it?
Well not necessarily! If the charity simply receives cash donations through a single building, then it will be able to claim its £5,000 maximum and no more. For example, if an independent church has Sunday offerings but also runs a mother and baby club where cash donations are received and other similar activities, then they will have a £5,000 maximum.

The rules get complicated by two factors, the community building amount and the rules on connected charities. These two issues are linked, as HMRC were concerned not to disadvantage large national or regional charities that had local branch operations.

What is the community building amount?

This will be a sum which is available to any charity which operates activities in a community building and the public or a section of the public attend those activities. In this situation, the charity will be able to claim a community building amount of up to the lower of £5,000 or the actual donations received in the building. If the charity operates activities in more than one building, then it will be able to have separate community building amounts for each building. The overall claim comprising the remaining amount (sums collected outside the building) and the community building amount is still subject to the over-riding 10 x Gift Aid limit.

Example

A church meets in a school on a Sunday morning and an offering is taken each week. In addition, it owns a building in the town which is open on a regular basis for a number of groups associated with the church. Those attending the building make donations. It will be able to have a top-up claim made up of a maximum of £5,000 for the Sunday offerings plus £5,000 for the donations in the building.

What is a community building?
This is defined as a building or part of a building to which the public or a section of the public have access at some or all times. The legislation gives a village hall, town hall or place of worship as examples but these are not the only buildings that can qualify. Specifically not regarded as community buildings are any parts of a building:

  • used wholly or mainly for residential purposes (this will exclude care homes);
  • that are used wholly or mainly for the sale or supply of goods (this will exclude charity shops);
  • used wholly or mainly for other commercial purposes, except at times when the charity is carrying out a charitable activity in those parts and those parts are available exclusively for the charity (this would appear to allow activities in a hotel room made available exclusively for that purpose).

Two buildings owned by the same person on the same or an adjoining site are to be treated as a single building, so a parish church and an adjoining church hall will count as a single building.

What are activities in a community building?
The requirements which must be satisfied are that:

  • the charity must run charitable activities in the building on six or more occasions in the tax year;
  • the activity is carried out with a group of people at least 10 of whom are in the class of people for whose benefit the charitable activity is being carried out;
  • the activity is of a kind that the charity makes available to the public or a section of the public;
  • none of the group is required to pay to access the building in which the activity is carried out; and
  • the activity must not have the primary purpose of fund-raising.

What are the rules for connected charities?
Where two or more charities are connected then the ‘remaining amount’ of up to £5,000 may have to be shared by them all. They can decide which charity or charities should make the claim and can decide what to do with the top-up payment. The amount claimed is a maximum of £5,000 divided by the number of connected charities making claims.

This in no way affects the charities which, although connected, are carrying out community building activities. They can have their maximum £5,000.

So how are charities connected?
The first requirement is that the charities must be carrying on the same or broadly the same activities. Without that in place there can be no connection. The rules then look at whether the control of the charities is broadly the same, so having all the same trustees would make the charities connected. In considering this, the rules used for determining associated companies are broadly followed.

There are many changes ahead for charities, so if you would like to discuss any of them please feel free to get in touch.

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