Gift Aid giveaway is costing the taxpayer £940m

Report reveals that charities getting less while cost to public purse has risen

The Gift Aid system designed to encourage charitable giving is costing the taxpayer £940m a year in refunds to companies and private individuals – but charities themselves are receiving less money from the mechanism than they did a decade ago.

The public sector spending watchdog, the National Audit Office (NAO), warns today that Gift Aid cannot be described as “value for money” after it found that the total sum received by charities has dropped by £20m to £1.04bn since 2000, while the cost to the public purse increased almost tenfold.

The NAO report into the working of Gift Aid sharply criticised HM Revenue & Customs (HMRC) for collecting insufficient data, and warned there was evidence that changes to corporate donations may have resulted in a reduction of the amount charities receive from firms.

The study warned that HMRC has no accurate estimate of the cost of abuse of the Gift Aid system, adding that its £170m assessment of the annual loss to the taxpayer through fraud or avoidance was “crude” and potentially understated the level.

Margaret Hodge, the Labour chairwoman of the Commons public accounts committee, said the report underlined concerns that tax reliefs were not meeting their intended purpose. She told The Independent: “This report makes pretty depressing reading. It is an extraordinary finding that the financial benefit to donors from Gift Aid is almost as great as the benefit to charities themselves.”

Gift Aid remains a valuable source of income for Britain’s charities, accounting for about two per cent of all charitable giving.

But the NAO said that changes brought into the system in 2000 designed to simplify charitable giving through taxation – and thereby increase donations – had had the effect of placing “third sector” income from Gift Aid in a decade-long freeze.

In 1999-2000, the amount of relief received by charities stood at £1.06bn. But the income of charities from the system last year stood at £1.04bn.

The plateauing of Gift Aid comes at a hard time for Britain’s charities. Those with an income of £1m or less have seen an 11 per cent drop in income over the last five years while bigger fundraisers have also hit hard times. Oxfam last month announced a shift in strategy which will involve the loss of 125 jobs after its income fell by nearly £18m to £368m.

At the same time, the amount of money either being foregone from public funds or reclaimed by taxpayers to facilitate Gift Aid has ballooned from £130m in 1999-2000 to £940m last year – just £100m less than the sum received by charities.

The NAO said it had concerns that the system, as it stands, means both charities and the taxpayer were losing out. It said: “There is insufficient evidence that the government has actively encouraged take-up of reliefs so that those charities which are entitled to them get the intended benefits.”

Charities said the study did not mean that the Gift Aid system was broken but said much could be done to improve its efficiency. The Charities Aid Foundation (CAF), which advises fundraising bodies, said the proportion of donations using Gift Aid fell to 39 per cent in 2010-2011, despite rising in previous years.

Rhodri Davies, CAF’s policy manager, said: “It is still a fairly clunky system of filling out declarations which results in quite a lot of additional admin work for charities. We need a 21st century system rather than one from the 19th.”

The HMRC said it was working to overhaul the Gift Aid system as well as  combating fraud, doubling the number of staff in its compliance unit. A spokesman said: “We have recently consulted with the sector on modernising Gift Aid and we work closely with charities to make it as easy as possible for them to claim tax relief.”

Q&A: How it works

Q. What’s in it for charities?

A. When a UK taxpayer gives an amount of money to a charity, they have already paid income tax on that money when they earned it. But because charities are generally exempt from tax, they can claim the amount of tax the donor paid on their sum back from HMRC – this is called Gift Aid. Charities, such as Cancer Research UK, say the scheme means “so much more money can be raised at no extra cost”.

Q. What’s in it for charity donors?

A. Aside from peace of mind, higher-rate taxpayers can benefit. Those paying the higher 40 per cent income tax rates can claim 20 per cent of the total “gross” value of their donation back from HMRC (this is because they are allowed to claim back to difference between that top tax rate and the basic rate, which is 20 per cent). So, if person taxed at 40 per cent donates £100 to charity, he or she can reclaim £25.

Q. What’s in it for big business?

A. Companies can claim tax relief for qualifying donations paid to charities, setting the amount against profits for corporation tax. But gift aid donations made to charities by companies are paid gross and so, unlike individual donations, no tax is repayable to charities.

Sam Masters

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Cover Supervisor

£75 - £90 per day + negotiable: Randstad Education Group: Are you a cover supe...

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam