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Rethinking Charity Tax

From Civil society Scotland Wiki

This page lays out some ideas around Gift Aid, bearing in mind the process of devolution and the advent of digital tax accounts. Please feel free to add thoughts directly to this page.

Introduction[edit | edit source]

Gift Aid is currently not devolved. It brings approximately £1billion into the sector across the UK. For every donation a citizen makes to charity, that charity can claim money back (hypothecated to the current UK basic tax rate) from HMRC, assuming the citizen has paid sufficient income tax that year. Donations will qualify as long as they’re not more than four times what a citizen has paid in tax in that tax year (6 April to 5 April). The tax could have been paid on income or capital gains. Donors must tell the charities they support if they stop paying enough tax.

Why are we talking about this?[edit | edit source]

It’s clear that Gift Aid – which hypothecates the amount of money paid to UK charities from the Treasury based on the income tax and capital gains tax that donors have paid – was designed for a much simpler system than the devolved tax system we currently have. Rather than patch it up, maybe now – at a time of further income tax devolution plus the move to digital tax accounts – we should consider a new scheme that would enable individuals to donate part of their income tax and capital gains tax to charities; something that could run either alongside, or instead of, the Gift Aid system.

What ideas do you have?[edit | edit source]

With the onset of digital tax accounting, the door really is open for a new scheme in the UK; one that avoids the administrative complications of the Gift Aid scheme for both charities (and CASCs) and donors. In Hungary, for example, tax payers can gift one percent of the income tax they pay each year to a charity of their choice. With a digital tax account, this would be an easy and administratively straight-forward way for UK citizens to give extra money to charities and other third sector organisations.

Another idea would be to use the individual digital tax accounts to encourage giving through simple nudges on those digital accounts. For example, a button on people’s individual tax accounts which allows them donate to charity when sorting out their tax; or a nudge on people’s individual tax accounts, pointing out to them that x% of people like them have donated, and suggesting that they do too.

Do you have any other ideas? If so, please share them here. Any design of digital taxation really should ensure that charities' and Community Amateur Sports Clubs’ tax administration be easier – for example, in relation to Gift Aid, ensuring that they no longer need take details of the donor beyond a reference code for each individual’s tax account.

Concern Detail Proposal
Older Gift Aid declarations still active Need to ensure we retain existing donors that might be lost in transition to digital, including those with pre-existing declarations
Ensuring clear thoughts on transitional arrangements How to build on existing Gift Aid system while starting the transition to digital tax personal accounts Collecting personal tax reference ID, rather than name address etc.
Coherence with privacy and GDPR The relationship between charity and donor is crucial as it builds the sense of investment and engagement that's key to giving. Therefore any data management needs to secure privacy but also secure direct engagement.