tiintax

The Treasury website asking for Budget representations is open until 20th February.  This is, in effect, a giant electronic suggestions box where any “stakeholder” is invited to put forward ideas for changes that they would like to see as part of the Budget process.

Now, you might think that, as I have already suggested a wish list of ten changes to the tax and benefits system I’d like to see in 2013, I would simply be sticking a link to that post through the letterbox and walking away.  But you’d be wrong.  Because as I see it, there’s a difference between the kind of small incremental changes that an external stakeholder can ask for as part of the Budget process, and the kind of large-scale politically-contentious change I asked for in my New Year’s Wish List.

I do, however, have a modest proposal which I think might be actionable as a minor Budget tweak, and it’s this.  Stop collection of unpaid Gift Aid from basic rate taxpayers.

Let me explain.  I know a couple of pensioners who have fallen foul of the rule that means, if you tick the gift aid box when you’re donating to charity, you have to have paid more tax than the amount the charity reclaims, or else you have to pay the tax yourself.

Think about that for a moment.  A pensioner on say £12k – basic state pension and a few quid from a works pension scheme – gets just under a grand a month net and pays £300 a year in tax  (personal allowance of 10500 so 1500pa is taxable at 20%).

They put a tenner a week in the collection box at church, but because the church is well organised it actually goes into a little envelope with an identifying number on it that matches up to the gift aid declaration they signed, so their £10×52= £520 is actually worth £624 to the church, because they claim back 20% of the amount – 104 – from the Treasury.

But then when you’re doing their tax return you find out that they also put another tenner in the collection when they go to the Wednesday service, so there’s another £520 on which a further £104 gift aid is claimed.  And that’s without the £100 that went to the Lifeboats, the £100 to the local hospice, £100 on Red Nose day and of course the £25 a month direct debit to the homeless…  So suddenly you’re looking at a total of £1640 in charitable donations over the course of the year on which £328 has been claimed back from Treasury and they’re £28 over.

Now in a sane world you’d ignore it, wouldn’t you?

Well that’s not what happens.  In both cases I know of, the return was amended and they were made to pay up the £28, and their previous three returns were looked at and they were made to pay any trivial amounts they’d over-donated in those years, and now one is scared stiff of “getting into trouble” and won’t tick the Gift Aid box on anything she donates to anyone.

Now, there are problems with Gift Aid.  Apparently there are around £10m of fraudulent Gift Aid claims each year (remember the Omnishambles Budget attempts to stop it?) But those problems are organised fraud which ought (at least in my view) to be treated via criminal rather than civil procedures – and they certainly aren’t caused by pensioners over-donating twenty-eight quid.

And the Treasury has itself introduced a new quasi-gift-aid relief for charities that doesn’t rely on a link between the tax payer and the tax paid, the Gift Aid Small Donations Scheme, which, I notice, was introduced to reduce the administrative burden on charities of Gift Aid… but which assesses them as “negligible” in its Impact Assessment.

So here’s my Budget suggestion.  Make any overpayment of charitable donations by a basic rate taxpayer non-collectable.  If a basic rate taxpayer chooses to tithe or otherwise give more money away than the tax they have paid, well, it’s going to be peanuts in the great scheme of things, and entirely likely to cost more to collect than the tax itself.

Here’s what I sent.  Now, I usually say you’re welcome to adopt or adapt this kind of response and of course you are.  And I also usually say I’m not campaigning for my point, because usually officialdom doesn’t respond well to campaigns.

Budget suggestions are different.  If I send this in on my own, my guess is it’ll be ignored.  If it turns out other people agree with me, well… who knows.

Make Gift Aid overpayments non-collectable from basic rate taxpayers

1. Background/Introduction

At least two pensioners of my acquaintance have at different times fallen foul of the rule that collects back taxes from people who donate slightly more in gift-aided charitable donations than the tax they pay. In each case the process was bureaucratic, frightening and appeared punitive to the pensioner concerned, and indeed one is now so frightened of “getting into trouble again” with her tax that she will not tick the gift aid box on any charitable donation. This is not, I contend, the aim of the legislation, nor of the administration of the tax system.

2. Concerns

A basic rate taxpayer is normally unlikely to give more in charitable donations than they pay in tax. The exceptions are likely to be pensioners, for whom a tithe of an income around 10-15k can easily take them into the “danger” area. It is also hard to understand and apply the legislation at that age, and it is particularly distressing for someone in those circumstances to find they are treated as a wrongdoer by HMRC. The cost of collecting an excess payment of £20 or £30 must far outweigh the benefit of collecting the money – as indeed the Treasury has acknowledged by introducing the GADS where NO connection between the taxpayer and the gift aided amount is required.

3. Aims/Proposals

My proposal does not require legislation but simple administrative action. HMRC should be instructed not to seek to collect any gift aid overpayments from basic rate taxpayers; they should issue guidance which says this is what they will do, and then they should do it. They would retain the ability to collect any tax due from anyone undertaking some kind of avoidance scheme (channelling funds from another source to a dubious charity via a pensioner, for example) because the law would remain as it is. They would simply, under their “care and management of the tax system” powers, not do it for the odd fifty quid from a too-generous pensioner.

• likely effectiveness and value for money; this would save money – the resource HMRC spends on such cases is, in my view, sadly misplaced and could easily be more productively spent.
• revenue implications for the Exchequer; negligible – the GADS scheme IA says that the costs to the Exchequer, the administrative burden and HMRC costs of the GADS scheme are “negligible” and I contend that this change would be less expensive than GADS and include at least the same administrative saving
• wider macroeconomic implications (for economic stability and growth); none
• sectoral impacts; the impact on the charitable sector is likely to be nil – the intention is not to change behaviour but simply not to punish existing over-generous donation
• distributional impacts; the principal impact would be on pensioners, who are the most likely group to be in the marginal income band where a tithe of income would be more than the amount of tax paid. It is wholly within the government’s ambition for a simpler tax system that they should not be mithered about the odd twenty quid over-donation
• administrative and compliance costs and issues; compliance costs for HMRC should be reduced
• legislative and operational requirements; I consider this could be done under HMRC’s “care and management” powers.
• environmental impact. None

4.   Conclusion

Gift Aid is a good idea. Punishing pensioners because they have given a few quid too much, isn’t. Ceasing to pursue such cases is a simple change which would free up HMRC resource, free a number of pensioners from unnecessary stress and worry, and is wholly in line with the government’s stated aims for a simpler tax system.

Wendy Bradley February 2012