For a de minimis limit on Retail Gift Aid claims

The retail gift aid system – which allows individual taxpayers to maximise the amount that their donations raise for their chosen charity – is vital for our members. In 2017 Gift Aid reclaims accounted for five per cent of the charity retail sector’s income.

But we also understand that like any financial system, Gift Aid rules need to be updated to take account of changes in the modern world.  Therefore, in 2015, we were very happy to enter into discussions with Her Majesty’s Revenue and Customs about how the guidance should be brought up to date. These conversations resulted in the latest guidance on retail Gift Aid which is available for free to our members.

However, we believe that there is one thing that missing from these regulations, which would be of huge benefit to the charity retail sector and which would be straightforward for HMRC to introduce.

Currently, the Gift Aid Small Donations Scheme, used by many charities to fundraise through online platforms and other means, works around a de minimis limit of £20. This means that in circumstances where a donation raises less than £20, the charity in question does not have go through the full process of writing to the donor and confirming their status.

We believe there is a compelling case for a £20 de minimis in the retail Gift Aid scheme.

Without a de minimis: financial cost

Charity shops operating under the Standard Method of retail Gift Aid must write to donors’ every time they make a claim. Retailers operating on Methods A or B must send out letters at the end of the financial year highlighting what the sale of an individual’s donated items have raised.

The average transaction value in a UK charity shop was £3.86 last year. This means that very many net sales of Gift Aided donations are for very small amounts. One of our largest members had to write to 42,791 donors about net sales under the value of £2 last year.

While these individual claims are very small, their cumulative total can be significant and we would not wish to discourage charities from making such claims.

Charities of course have the option of making contact through email, but many charities only have postal addresses for the majority of their retail Gift Aid Donors.

For example, a hospice running 24 stores told us that out of a donor base of 41,000 they only have 3,500 with email addresses. For those they regularly communicate with – essentially those who donate enough items to be written to in each quarter – they only have about a third on email. Other evidence we have collected suggests that this is a typical proportion.

Therefore, for the sake of very small claims, charities are incurring unhelpful postage costs which eat away at the total they are able to spend on their cause.

The figures we are talking about are not insignificant. One of our largest members, a national chain, have estimated that a de minimis of £20 would save them nearly £110,000 a year in postage costs – money which would be much better spent on their cause.

Without a de minimis: reputational cost

There are also reputational risks to charities associated with writing to donors about very small net sale proceeds. This comes in two forms.

Firstly, donors are confused as to why they are receiving information about sums of money they consider to be trivial, especially those under £1.

Many of our members are contacted by donors asking why the charity has wasted money contacting them in these instances. A medium-sized charity retailer operating in London provided us with the following recent example: “Hi, this is just a quick note to let you know we don’t need a letter informing us of sales of items we’ve donated – we’d prefer every penny was used by the hospice, so feel free to take us off your mailing list.”

Secondly, donors are sometimes concerned to see that their donation did not raise as much for the charity as they anticipated when they handed it over.

Sometimes donors will have unrealistic expectations about the sums the charity will be able to generate from the personal items they have donated. In these cases, receiving a letter telling them that their item has only eventually raised a few pounds or pennies can put them off donating in future.

Conclusion: simple, achievable, fair

Introducing a de minimis limit would not require primary legislation and could be done quite simply with a change to the retail Git Aid guidance. HMRC could therefore achieve this simple change to the benefit of charities across the UK in this financial year.

Matt Kelcher
Head of Public Affairs and Research
Charity Retail Association