Retail gift aid: what you need to know

The retail Gift Aid system is vital for our members. Last year, Gift Aid reclaims accounted for five per cent of the charity retail sector’s income. 

Therefore, we are always keen to work closely with government to ensure that the system is up-to-date and fit-for-purpose. These conversations have resulted in the only assured guidance on retail Gift Aid available, and also a further improvement to the system which came into force on the first day of this financial year.

Before April 2019, shops operating on the Standard Method of retail Gift Aid had to write to their donors every time they made a claim.

Transactions in the charity retail sector tend to be for very small, with an average value of £4.05 across 2018. Asking shops to send letters to donors after sales of such small amount had two clear disadvantages from perspective.

Firstly, there is an obvious financial cost to the shop, which eats away at their bottom line; money spent on their cause. 

Charities 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.

Cumulatively, the costs of all this postage are very significant.  One of our largest members estimated that they spend nearly £110,000 annual on postage for low value claims.

Secondly, there are also reputational risks to charities associated with writing to donors about very small net sale proceeds.

It is not uncommon for charity shops to receive messages from donors asking them to stop the flow of mail. A medium-sized charity retailer operating in London provided us with the following example: “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.”  Unfortunately, this was not a request the shop could legally comply with.

Similarly, donors are sometimes concerned to see that their donation did not raise as much for the charity as they anticipated, particularly if they have unrealistic expectations of the value of a personal item. 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.

Our solution

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 therefore believed that there was clear precedent for a £20 de minimis in the retail Gift Aid scheme and set about to persuade the government to introduce this change.

An important milestone came when we got the Shadow Charity Tax Minister, Anneliese Dodds MP, to table a Parliamentary Question on the matter.  This led to further discussions between the Charity Retail Association and officials.

The Budget

It might not have caught the national media’s attention, but section 3.16 of November’s Budget Red Book contained an important announcement for charity retailers.  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 huge move towards what we had asked for.  As Charity Tax Group vice-chairman Richard Bray said at the time, “these new rules are therefore a very welcome practical change and we are grateful to HMRC for listening to our concerns.”

The changes only apply to end of year letters, and therefore only impact on charities running their retail Gift Aid system on Method A or Method B.

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.

We published full details and a set of FAQs on our website and have updated our official guidance to ensure everyone in the sector has the information they need to take advantage.

We will always keep fighting to improve a system our members rely upon.

Matt Kelcher
Head of Public Affairs and Research
Charity Retail Association