Update: Budget changes to Gift Aid

The 2018 Budget contained an important announcement for charity retailers operating a Gift Aid system.  It might not have grabbed the headlines on BBC 1 or ITN but it certainly caught our attention!

Section 3.16 of the Budget Red Book contained information on a relaxation of the requirement to write to Gift Aid donors at the end of every single year.  In the case of very low claims, charities would only have to write to donors at the end of a three-year period.

This was a strong win for the Charity Retail Association, as we have been promoting the idea of a de minimis of retail Gift Aid claims for some time.  Following discussions with HMRC, the below describes the change in detail, as we understand it.

 

The policy

The primary legislation which established the system of Gift Aid makes it clear that anyone who makes a donation on which Gift Aid is claimed must be fully informed about this process so they can always ensure they have enough tax to cover.  Therefore, the requirement to write to donors cannot be removed completely without a change in the law passed by Parliament.

When it comes to most Gift Aid donations, ensuring the donor is kept informed is very straightforward.  They know exactly how much a donation is worth because they handed over a cash sum.  However, on retail donations the donor cannot know exactly how much their donation is worth until the item is sold.

For these reasons, the government insist that the requirement for letters to donors must remain.  At the same time, they also want to reduce the burden on charity shops and believe the changes in this budget achieve a good compromise between these two goals.

The changes in the Budget only apply to end of year letters, and therefore will only impact on charities running their retail Gift Aid system on Method A or Method B.  Those on the Standard Method will still need to write to their donors every time they make a claim.

Under the new system, if nothing is sold within a financial year, then no letter needs to be sent.  If something is sold, but the total donation (i.e. the sales price) is less than £20, then the charity does also not need to send a letter until the end of a three-year period.

After the end of a three-year period if any sale has been made then donors need to be written to as before.  If no sales have been made over three years a letter does not have to be sent.

The change will come into force from the beginning of the 2019/20 financial year through a change in the Gift Aid guidance issued by HMRC.  Donors must also be given the right, in the Agency Agreement, to still receive an update every year, if they so choose.


Examples

Example 1

  • In year one, items donated by Donor X are sold for £19.  The charity does not have to send a letter to Donor X as the value is under the £20 limit.
  • In year two, items donated by Donor X are also sold for £19.  The charity does not have to send a letter to Donor X.
  • In year three, items donated by Donor X are again sold for £19.  As the end of the three-year period has been reached, the charity must write to Donor X and inform her that her donated items have raised £57 for the charity in the three-year period and asking her to ensure she has enough tax to cover.

Example 2

  • In year one, items donated by Donor X are sold for £19.  The charity does not have to send a letter to Donor X as the value is under the £20 limit.
  • In year two, items donated by Donor X are sold for £21.  The threshold has mean met so the charity must write to the donor to inform them about the sales of their donations throughout the period, i.e. a total of £40 raised.
  • A new three-year period will begin in the next year.


What next?

To prepare for the change, charity retailers should start a conversation with their epos supplier, or whoever runs their retail Gift Aid system.  Some work will be required, but the ability to cut out the sending of several letters – for some of our members tens of thousands a year – will amount to a very significant financial saving.

For more information on Gift Aid, please visit the dedicated page on our member website.


Further FAQs (provided by HMRC)

Can a donor still request a letter if the amount is less than £20?

Yes. Charities operating retail Gift Aid will need to give a choice to the donor who wishes to receive annual letters.

When will the change come into effect?

The change comes into effect from tax year 2019-20.

 

When must I send a letter if the sale of a donor’s goods raises £19 in 2019/20 and nothing in the next two years?

You must send a letter at the end of the third tax year which in this case would be following the end of the 2021/22 tax year.

 

When must I send a letter if the sale of a donor’s goods raises £21 in 2019/20?

As the amount raised from the sale of the donor’s goods is more than £19 you must send the annual letter after the end of the tax year 2019/20.

 

When must I send a letter if the sale of a donor’s goods raises £19 in 2018/19 and £21 in 2019/20?

As the amount raised from the sale of the donor’s goods is more than £19 in 2019/20 you must send the annual letter after the end of the tax year 2019/20.

 

Can I send e-mails, texts etc, rather than letters?

You can use electronic communications to tell donors about the amount raised from the sale of their goods. However, the communication must use the wording provided in the HMRC template letters.

 

If my letter covers multiple years, do I need to specify the amount raised in each year?

If your letter covers multiple years you will need to specify the amount raised in each year. This allows the donor to confirm that they have paid tax for the relevant tax year(s) to cover the donation for Gift Aid repayment.

 

Do I need to send an annual letter if none of the donor’s goods have been sold?

You don’t need to send an annual letter or a letter at the end of the three tax years if none of the donor’s goods have been sold in the year or throughout the three year period.

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