In a move described by some as the biggest change to Gift Aid since it was introduced, HMRC have announced that they will move the Gift Aid claim process to an online system with effect from April 2013. The existing claim Form R68i will be withdrawn.
Besides Gift Aid proper, the new system will also be the means by which charities will claim top up payments under the new Gift Aid Small Donations Scheme. The key issue that charities need to be aware of is that the new claims system will require more information than previously. So, for example, it will be necessary to provide the name and full address of each donor in every Gift Aid claim.
Charities Online will facilitate Gift Aid reclaims as well as claims for other charity tax reliefs. The system will offer claimants three options:
It will be important that the form is completed accurately. If just one entry leads to a failure to pass the HMRC automated validation criteria, the whole claim will be rejected.
2. An online, externally developed, software interface
This will be required if a charity wishes to claim a Gift Aid repayment for more than 1,000 donors. It is expected that providers of charity accounting, database and CRM solutions will want to develop a module to facilitate these larger claims. At present, it is not known who will or will not provide this service and at what cost.
An alternative is for a charity to develop its own interface software to sit alongside existing systems. A ‘Tech Pack’ is available from www.hmrc.gov.uk/softwaredevelopers/gift-aid-repayments.htm. For details of the HMRC Software Developer Support Team who can answer questions and provide support, see www.hmrc.gov.uk/softwaredevelopers/index.htm
In both cases, there is a limit of 500,000 Gift Aid donations in any one day.
3. A Paper Claim Form
For charities that cannot access the internet, there will be a new paper based form (a ‘ChR1’) that will replace the existing Form R68i.
We are expecting this form to be time consuming to complete. It will be designed to facilitate scanning by HMRC and will therefore require users to enter each character in a separate box on the form. It will also be limited to just 90 Gift Aid donations. Separate sections of the form will enable claims for other tax reliefs, including under the Gift Aid Small Donations Scheme.
You will not be able to claim on the R68i form, nor use photocopies of the new form. The ChR1 will be available direct from HRMC from April 2013.
Actions that you need to take
Make sure that your charity’s Gift Aid claims are made right up to date as of March 2013. That way, you will be able to capture the enhanced data requirements at the point of donation, for all new donors. However, you will still need to make sure that you have this information in your claims system for existing donors who continue to give to your charity after March 2013.
Ensure that you have planned how you will submit Gift Aid claims from April 2013, according to one of the above three options.
Ensure that you have the right people authorised with HMRC and in place to make those claims under the new system. HMRC are sending charities a Form CDUF1(V2) to capture up to date contact and bank etc. details.
Ensure that you understand the new Gift Aid Small Donations Scheme so that your charity can take maximum advantage of this from the earliest opportunity.
We are expecting HMRC to agree to a short transitional period, after March 2013, whereby they will accept R68i Forms. This is to give charities a little more time, if they need, to adjust their systems to the new arrangements. To date, no commitment has been made as to how long this will be. Staff presently processing these forms, are to be redeployed elsewhere in HMRC and therefore the transitional period is expected to be short.
The Gift Aid Small Donations Scheme, which will be introduced from April 2013, is very nearly law. The Scheme will allow a new ‘Gift Aid style top up payment’ from the Government on cash donations (such as church collections and bucket collections) but without the need to obtain a Gift Aid Declaration from the donor.
Stewardship has played a central role in the development of this Scheme. We:
I was called by the Government as an expert witness, to provide evidence to the House of Commons Public Bill Committee, scrutinising the Bill.
As a result of this, the Bill has been significantly amended since it was first published and, a number of the amendments directly respond to the concerns that Stewardship expressed to HMRC and the Government:
Gift Aid Matching rule
As originally proposed, in order for a charity to claim for £1 of cash donations under the Scheme, it would have to claim for at least £1 of Gift Aid donations as well. This ‘matching’ rule is designed to reduce the possibility of fraudulent claims. However, we were concerned that this would limit the ability of very small churches and charities to fully benefit, even if they did receive £5,000 of cash donations in a given year, because their Gift Aid income may not be high enough.
Stewardship asked for this ratio to be increased from 1:1 to 10:1 (so that for each £1 of Gift Aid claim, the charity would be able to claim on £10 of cash donations). We were therefore delighted that the Government, this week, agreed to not only increase the ratio but to increase it right up to 10:1 as we originally requested.
Before becoming eligible for the Scheme, a charity would need to be registered with HMRC for Gift Aid purposes for at least three years, and to have made successful Gift Aid claims in three of the last seven years. Stewardship expressed concern that this will make it difficult for new charities, and for church plants that become independent of their mother church, to benefit under the Scheme when these are just the sort of charities that need the sort of help that the Scheme offers.
Stewardship therefore asked for this rule to be modified so that ‘younger’ charities could benefit from Year 2, albeit with a lower limit than the £5,000 offered by the main Scheme.
Whilst the Government did not make exactly the change that we pressed for, they have this week changed the Bill so that a charity becomes eligible after two years, and on the basis that successful Gift Aid claims have been made in two out of the last four years.
Community buildings rule (1)
In addition to the £5,000 of small cash donations that all charities would be able to claim on, where a charity (such as a church) has meetings in a ‘community building’ (which is defined in the Bill), they will be able to claim on an additional £5,000 of small cash donations. Commercial and residential buildings were excluded from this opportunity.
We were able to persuade Government to modify the commercial buildings restriction so that churches that meet in (for example, leisure centres, cinemas and theatres) will now be able to qualify for these additional payments.
Community buildings rule (2)
In order for a community building to be eligible for the additional top up payments, charitable activities need to be carried on with at least 10 persons on at least six occasions during the year. In counting the 10 persons, the Bill as originally drafted excluded some volunteers, persons employed by the charity and officers or trustees of the charity. We were concerned that this would mean that smaller churches would be excluded as volunteers, employees and trustees will typically also be church members.
The Government accepted these concerns and deleted reference to volunteers, employees, officers and trustees.
Connected charities rule
In order to prevent charities artificially splitting into a number of new charities in order to gain access to top ups on multiples of the core £5,000 limit, a connected charities’ rule will state that where certain conditions exist, a single £5,000 limit will be shared by all of the connected charities.
Stewardship was worried that because of the many close family connections that exist in the local church, this rule may impact, wrongly, by connecting a number of local community charities, where this was not intended by the legislation. HMRC therefore worked closely with Stewardship to test out a revised connected charities rule.
We were concerned that where a charity changes its legal form (for example, changing from a charitable trust to a Charitable Incorporated Organisation), or where one charity merges with another, that the eligibility criteria are carried over from the predecessor to successor organisation. This was built into the original Bill but required the predecessor organisation to be dissolved. We pressed for this requirement to be dropped since there are circumstances in charity law whereby the predecessor organisation should be retained. The Government tabled amendments to the Bill that removed the requirement to dissolve.
The Small Charitable Donations Bill will now be considered by the House of Lords in December. Once enacted, we will publish a Briefing Paper on the Scheme, tailored to the needs of churches and Christian charities and containing illustrative examples of how you can maximise the benefit for your church or charity.
In our last Legal Eagle e mail bulletin, we highlighted the need for churches and charities to use the most up to date Gift Aid claim form, the R68(i) in order to ensure that your Gift Aid claim is repaid as quickly as possible.
HMRC have today gone further by announcing that they will no longer accept the older forms that some charities are still using.
The R68(i) which has been in use for fifteen months now, replaced all previous versions of the form. A copy of the form and guidance notes can be found via this page.
From next week, when HMRC receives a repayment claim on an old style form they will contact you to:
The new R68(i) claim form, which is semi automated and is completed on screen, is designed to reduce errors by calculating the correct amount of Gift Aid you can claim using the dates and amounts you enter.
The Scotland Act 2012 received Royal Assent on 1 May 2012.
The Act gives the Scottish Parliament the power to set a Scottish rate of income tax to be administered by HMRC. Applying to the non savings income of Scottish taxpayers and expected to be implemented from April 2016, it provides for a number of taxes to be devolved to Scotland, including land taxes.
The definition of a Scottish taxpayer is based on the location of an individual’s main place of residence. So, a Scottish taxpayer could be employed by an English (or Welsh or Northern Irish) employer who will have to apply the Scottish rate of income tax.
Each main rate of UK income tax (that is, the basic, higher and additional rates) will be reduced by 10%. At the same time, the Scottish Parliament will set a rate that may be higher or lower than 10% and will be added to the main UK rates (as reduced). So, if the UK basic rate is 20% and the higher rate 40% and, at the same time, the Scottish rate is set at 12%, Scottish taxpayers will pay a basic rate of 22% (20% less 10% plus 12%) and higher rate taxpayers 42%. Similarly, if the Scottish rate is set at below 10%, Scottish taxpayers will pay a lower overall rate of tax than taxpayers elsewhere in the UK.
Savings and dividend income of Scottish taxpayers will be taxed at the main UK rate and is unaffected by the Scottish rate. An added complexity!
This all clearly has implications for charitable giving and Gift Aid – which have been discussed by an HMRC high level technical group on which Stewardship was represented. We concluded that it would be unduly complex both for charities and for taxpayers if Gift Aid donations were to be made by reference to the Scottish basic rate of tax. Therefore Gift Aid will continue as now. When a donor makes a gift to charity, after April 2016, they will be deemed to have deducted tax at the UK basic rate and not the Scottish basic rate.
However, the charity is not concerned with the claiming of higher or additional rate relief. This is claimed by the donor on their personal tax return. Accordingly, where a higher or additional rate taxpayer wishes to claim relief on the gross value of their charitable donations, this will be calculated on the difference between the Scottish rates only. So, if the Scottish rate is set at 12% such that the Scottish higher rate is 42% and the Scottish basic rate is 22%, the calculation will be on the difference between 42% and 22%.
Note: the deemed gross value of a charitable donation by a Scottish taxpayer, for the purposes of the higher or additional rate relief only, will be grossed up at the Scottish basic rate rather than the UK rate. This means that the value of the higher / additional rate relief may differ slightly from a donor in the rest of the UK.
For example, if a non Scottish UK donor makes a gift of £100 to charity, the value of the gift grossed up at the UK rate of 20% is £125. Higher rate relief is calculated on £125. If a Scottish donor makes a gift of £100 and the Scottish basic rate is 22% (as above), the grossed up value of their gift is £128.21. The higher rate relief will be based on this figure and not £125 despite the fact that the charity will always reclaim the basic rate tax of £25 (ie the UK wide rate) regardless of the geographical location of the donor.
Gifts made by Scottish taxpayers under the payroll giving scheme will always be calculated at the Scottish rates. This is because the donor’s PAYE code will identify them as a Scottish taxpayer – even if they work for a UK employer based outside Scotland (for example where the taxpayer lives in Scotland but goes to work the other side of the border).
Relief for gifts of shares or property to charity that qualify for income tax relief is given through the self assessment tax return. The charity does not claim income tax relief on these gifts as it is all given to the donor. As such, it is a straightforward process for all of the relief to be given at the Scottish rates.
A Technical Note (‘Clarifying the Scope of the Scottish Rate of Income Tax’) has now been published and HMRC are inviting comments until 31 August 2012. To access your copy of the Note, click here.
HMRC has recently updated its guidance on Gift Aid Declarations. Three new model forms are provided. These change the ‘tax to cover’ wording and make it clear that taxes such as VAT and council tax do not qualify. The new ‘tax to cover’ wording should be used as soon as possible and for all new declarations and replacements for enduring declarations by 31 December 2012.
Charities do not need to pro-actively seek replacement declarations for those that are already in place.
HMRC has also corrected previous guidance to make it clear that declarations must be retained for six, rather than four years. Charities will not be penalised, if before 1 January 2012, they destroyed declarations relating to donations more than four years but less than six years previous.
blogs by the Stewardship team and selected guest writers.