'Our aim should be to make the tax system for charities work as fairly, and as effectively, as possible', says Damian Hinds in a speech to the Charity Tax Group.
Good afternoon – I’m delighted to be here today at the Wellcome Trust.
Now most politicians have a few photos of them which they’d rather other people didn’t see perhaps because they fear those pictures wouldn’t quite tally with the serious, statesmanlike image they want to portray!
You don’t have to search too far to find mine. It was taken two years ago. It shows me grinning, wearing an oversized pair of pink star sunglasses, pink tie, pink pocket handkerchief, making a phone call on an enormous pink phone.
Not the best picture ever taken of me, but it was all in the spirit of Wear It Pink Day.
To me, it is a source of enormous pride that charitable giving is so central to our society.
I see it all the time, in my constituency and in my day-to-day life.
People raising funds. People giving up their time, and expertise, and energy… and occasionally their dignity. Communities coming together to help those less advantaged. Overwhelming national waves of generosity for a wide variety of causes.
In any given month, 74% of us donate to charity. That is an astonishing statistic.
Your objective, I know, is to harness that generosity and make every penny go as far as it can. My ambition, as Minister responsible for charity taxation, is to help you achieve that aim.
In an ideal world, charities wouldn’t have to worry about taxes. In fact, in an ideal world, charities wouldn’t have to exist at all either!
However, taxation is a reality we have to live and work with. So our aim should be to make the tax system for charities work as fairly, and as effectively, as possible.
The tax reliefs we currently have in place support charities to the tune of over £5bn a year. Last year alone, Gift Aid, which relieves income tax on donations, was worth over £1.2bn to charities.
These are sizeable figures. However, what we cannot do is sit back and say “we have a system in place, it’s working well, let’s keep it as it is.”
Some things of course stay the same. Britain has always had a tradition of philanthropy, for example. We still have large numbers of individuals – some wealthy though by no means all of them – displaying outstanding generosity, year on year.
The staples of charitable giving – bequests, street collections, art donations, charity shops, the sale of merchandise – still exist.
But other things evolve. The internet, for example, has been a game-changer over the past twenty or so years. We’re now in the era of donations being made online, at the touch of a fingertip.
We’re seeing small campaigns – often fronted by a single individual – go viral, and gain coverage which national charities could only dream of.
Charities have proven themselves to be some of the savviest operators of social media. And, pretty much every day, the revolution in financial technology is creating new horizons for fundraising.
Our challenge is to refine our systems, to make them as effective as possible – as well as keeping up with the innovations we see every year.
And that is what I am looking forward to working together on.
The last five years saw Government introduce some significant new measures.
We introduced the Cultural Gift Scheme, which gives tax relief to those who donate art works to the nation;
We introduced the Employment Allowance, which is now in effect and can give up to £2,000 of relief on National Insurance Contributions bills to around 35,000 eligible charities;
We reduced the rate of inheritance tax for those who donate 10% of their estate to charity;
We improved the Community Amateur Sports club (CASC) regime, to let these clubs help the whole community;
And, last but not least, we published a signed memorandum of Understanding for Payroll Giving, to encourage more charities, employers and donors to support the scheme.
We also made important changes to improve Gift Aid, which celebrates its 25th anniversary this year.
We introduced the Charities Online system so charities can receive Gift Aid more quickly and easily;
We simplified the process for claiming Gift Aid on charity shop donations;
We introduced the Gift Aid Small Donations Scheme, which has helped over 17,000 charities since it started in April 2013;
And we made a start on legislation to allow intermediaries, such as justgiving, to play a greater role in Gift Aid.
We realise that it’s not enough to have good rules in place – you have to encourage take-up, too.
I know this has traditionally been an issue for small charities in particular. Not because there isn’t the enthusiasm – it’s more a case of awareness.
So we have focused on making sure more small charities know about – and access – the reliefs to which they are entitled.
The outreach team we set up in 2014 has had over 10,000 interactions with charities to spread awareness, increase take-up and help charities claim tax relief.
We have published an improved guide to encourage charities to register for their tax reliefs; and we’ve also carried out research on how we can encourage more donors to use Gift Aid when they donate.
So… where next?
I see developments taking place in four specific areas.
First of all, we will continue our work on giving intermediaries a greater role in how Gift Aid is administered.
Giving online or by text message is now standard procedure. A quarter of people who donated in the last 12 months did so through those channels. We’ve seen donations being made at ATMS; we’ve even seen them via Oyster Card, a penny a go.
But under current regulations, every time someone wants to claim Gift Aid on a donation to a new charity they have to fill in a new Gift Aid declaration, even if it’s through the same intermediary. This can be burdensome and offputting, and I’m not convinced the regulations have kept up with the modern world.
We hope to informally consult on draft regulations over summer, before introducing changes in April 2016 – and I hope you will continue to support this important work.
Secondly, we will be reviewing the rules on donor benefits.
These rules, as you will know, currently allow charities to thank donors by providing hospitality and gifts, within strict limits.
But the rules are currently complex, and there are concerns about how consistently they are applied.
In the near future, we hope to launch a call for evidence on how the system actually works in practice – with the aim of making the rules simpler and more effective.
Thirdly, we will continue to refine and improve the Gift Aid Small Donations Scheme.
This was introduced to help charities get a Gift Aid style top-up payment in situations where it would be difficult to get a Gift Aid declaration from a donor – for example in a High Street collecting tin, or in a plate passed around a church service.
At the last Budget we announced an increase in the total amount of donations charities can claim a top-up payment on each year, from £5,000 to £8,000.
We expect this increase to be of especial benefit to the 6,500 charities that currently claim the full £5,000.
And we are now preparing for a 2016 review of how the scheme rules have worked – so we can make sure GASDS works as well as it possibly can.
Fourth and finally, we are finalising a new, simpler model Gift Aid Declaration and guidance, to make it easier for donors to understand.
We hope to announce specific changes to this very soon – and I know these changes will be the result of long and detailed work between HM Revenue and Customs, and the charities sector.
As well as these four areas, on the horizon there are two developments which, in the longer term, could be quite significant.
The first is that under the devolution agreement, the Scottish Government will receive responsibility for setting income tax rates.
Gift Aid is of course a relief on income tax. Even though our thinking on this is at a very early stage, it is clear that this will raise some fairly fundamental questions!
The second is the aspiration to roll out Personal Tax Accounts, which the Chancellor announced at Budget.
This would be in parallel to the phasing out of self-assessed tax returns – and would give every UK taxpayer much more detailed information about their tax affairs. There may be the potential to integrate charitable donations into these accounts – which could have a transformative effect on making charity tax simpler.
I will be frank: there’s a lot of work to do in both these areas, and they will take up much of our thinking over the coming years. There will be some tough choices to be made here but also, I hope, some interesting opportunities for you.
I know my officials will be reliant on your input to inform the development in these areas – so the solutions we put in place are the best possible for the charity sector.
My pledge is that, as we work through these issues, we will continue the excellent dialogue we have with the charities world.
Over the past five years, we could not have made these improvements to the system without that close relationship.
So let’s continue working together…
Let’s continue consulting each other…
My door will always be open to ideas on what works and what could be made better…
And I hope you will continue engaging with us, as we help you get the most out of this nation’s wonderful generosity.
Thank you for listening.