12 May 2016

Arts Council England response to the consultation on simplifying the Gift Aid donor benefits rules

Introduction

Arts Council England is the national development agency for the arts, museums and libraries in England. Our remit for ‘the arts’ includes a wide range of visual and performing art forms, music, dance, theatre and literature. We have funding responsibilities for regional museums, and a development role across libraries and the wider museums sector. We are sponsored by the Department for Culture, Media and Sport in order to make the arts, and the wider culture of museums and libraries, an integral part of everyday public life, accessible to all, and understood as essential to the national economy and to the health and happiness of society.

As the arts and cultural sector’s development body we have a responsibility to support capacity building and resilience. In 2014/15 we invested £332 million into our National Portfolio Organisations andMajor Partnership Museums[1]. The majority of these organisations are registered charities eligible for Gift Aid as are many recipients of other Arts Council England investment. In 2012/13 the arts and cultural sector had a turnover of over £15 billion and provided more than one in 20 jobs in the United Kingdom[2]. Therefore, the impact of any changes to Gift Aid on the arts and cultural sector, and the UK economy more broadly, should not be underestimated.

We are providing a response to this consultation as a body that advocates on behalf of charitable and non-charitable organisations in the arts and cultural sector. Our response is informed by the feedback of organisations that will be impacted by the proposed change and we hope that it will add further weight to the evidence they will provide.

Response

Question 1: Would calculating the ‘net’ amount of donations on which Gift Aid can be claimed by deducting the cost of providing Donor Benefits from a charity’s gross donation receipts represent genuine simplification for you? Please provide detail to support your response.

No. This would not provide a simplification for charities or donors. It is likely, for example, that there will be an issue of providing an in-year ‘estimated’ Gift Aid receipt to higher tax rate payer donors, which may differ considerably to the final end of year Gift Aid receipt. Such uncertainty may force donors to be more hesitant or to reconsider their donation patterns in future.

Question 2: Would removing the relevant value test and aggregate value test andoperating Gift Aid Donor Benefits through an extension of the split payment rule represent genuine simplification for you? Please provide detail to support your response.

We do not feel that, in comparison to proposal 1b, the extension of the split payment rulewill represent genuine simplification.

Question 3: Do you agree that this proposal would mitigate the administrative burden on charities? Please provide details to explain your response.

We do not support this proposal - based on feedback from the sector, the administrative burden would increase. Proposal 1b presents a more workable solution, provided that donor benefits are valued according to the cost to the charity and not the market value.Feedback from the sector suggests that there are inconsistencies regarding the classification of benefits at market value or at cost. We feel that the standard classification of donor benefits (at cost to the charity and not at market value) and the production and application of consistent guidance would further reduce administrative burden.

Question 4: What negative implications, if any, do you foresee this proposal having on your ability to claim Gift Aid? Please provide details to explain your response.

Many donors, high value donors in particular, need to see their Gift Aid receipt at the time of donation and not at the end of year (see question 1).

Question 5: Would you consider reducing the number of thresholds, from three to one, to be a useful simplification of the current Donor Benefit rules? Please provide details to explain your response.

Yes, we support proposal 1b. This could reduce the administration burden caused by the existing three thresholds. The threshold amount must be valued at the cost to the charity, not market value. Although this change would proportionally benefit and potentially encourage higher valuedonations, it remains for the sector to decide whether the reduction of benefits for donations under £200 will prove a disincentive for smaller value donors, considering that the majority of donations are under this value[3].We agree that proposal 1b should be implemented alongside a low value benefit disregard (point 3.31) in order to mitigate this.

Question 6: Would you consider expressing this remaining threshold in terms of the value of the benefit as a percentage of the associated donation a useful simplification of the Donor Benefit rules? Please provide details.

Yes. We think a percentage threshold is clear. However, we are concerned that HM Treasury is not taking this opportunity to consult on a proposed threshold value. Additional consultation will be necessary to confirm the threshold amount. Based on feedback from the sector, 10% is a workable minimum threshold as long as benefits are valued at cost to the charity and not at market value.

Question 7: Do you think that this proposal is preferable to Proposal 1a (above), namely removing the thresholds altogether? If so, please provide details.

Yes. The threshold system, when simplified to only one tier, will be easily understood. It maintains the aggregate value test which will ensure that benefits never become excessive and encourages the provision of benefits commensurate with donations (depending of course on the threshold level which remains to be set).

Question 8: Would any of the options set out in Section 1 represent a welcome simplification of the existing rules? If so, please identify which and provide details to explain your response.

Yes. The reduction of the thresholds to only one percentage figure is a welcome simplification.

Question 9: To what extent would a disregard for low value benefits simplify the Donor Benefit rules for charities? Please explain your answer.

A disregard for low value benefits would simplify the rules for many charities, provided that the disregard benefit was valued at cost to charities and not market value.

Question 10: To what extent would a specific disregard for benefits below the value of £3 represent a valuable simplification for charities? Please explain your answer.

We understand £3 to be an arbitrary figure. We support the low value benefits disregard and recommend that this is set at £5 (based on cost to charities). This will significantly benefit smaller charities in the longer term and, as the guidance states, may remove many small charities that provide low value benefits from the scope of the donor benefit rules. This answer is conditional the benefit value beingbased on cost to the charity, not market value.

Question 11: What would be the impact on your organisation of applying a disregard for low value benefits according to an annual ‘per donor’ limit rather than a ‘per donation’ limit? The government would welcome all views on this proposal, and specifically on the potential administrative impacts and any effect it may have on charities’ ability to incentivise their donors.

Based on conversation with the sector we feel that a disregard per donor would be cumbersome. The increased administration of tracking donations over the course of a year by donor may make it more difficult to ensure compliance with legislation and would not be commensurate with the simplification the ‘low value’ disregard is meant to bring about. Rather, the ‘per donation’ limit is practical to apply. We understand that many donors give regardless of a small incentive or benefit, but for those that do, an annual‘per donor’ approach may negatively reduce donor expectation, particularly for frequent donors.

Question 12: Would you consider the inclusion of a split payments rule in legislation to be a useful clarification of the Donor Benefit rules? Please provide details.

No. Based on feedback from the sector, it is not clear why – when goods/benefits provided to donors can be bought at market value, ie a benefit package – this area must be legislated. For the sake of this argument, other benefits not publicly available can continue to be valued at cost to the charity although we recommend that for greater simplification, all donor benefits should be considered at cost to the charity and not at market value.

Question 13: Would the requirement to proactively inform donors of the amount of Gift Aid claimed on split payment donations impose significant extra burdens on charities? If so, please provide details.

As noted in the guidance, as part of best practice compliance and relationship building with donors, many charitable organisations already provide accurate Gift Aid receipts. Physical and online literature is also very clear about the Gift Aid that will be claimed on a donation. The issue at hand is not whether there would be significant extra burdens on charities, but whether this method would negatively impact higher amount donors if proposal 1a was implemented (see Q1).

Question 14: Would you consider the inclusion of the averaging method in legislation to be a useful simplification of the Donor Benefit rules? Please provide details.

Yes. As noted in point 2.25, the averaging method is widely used in the arts and cultural sector.

Question 15: Would you consider the inclusion in legislation of literature being considered of inconsequential value to be a useful simplification of the Donor Benefit rules? Please provide details.

Yes, and we recommend that the legislation includes e- and online literature and the postage costs for printed literature. We note the disparity between Gift Aid and VAT treatment of online/e-literature and recommend that this matter is discussed clearly in any published guidance for the benefit of the wider charitable sector.

Question 16: How, if at all, would the removal of the lifetime benefits rule create problems or complexity for charities? Please provide specific examples to support your answer.
We agree that the removal of this rule would not negatively impact the arts and cultural sector.

Question 17: Are there any other major aspects of reform that you would like the government to consider? Please provide details.

We continue to support the recommendations of a letter presented to the Chancellor of the Exchequer in February 2015 signed by key umbrella bodies in the arts and cultural sector[4].For the purposes of this consultation these include:

  1. Extending the admission disregard to include the performing arts sector and ticketed events (point 2.27).
  2. Giving higher tax payers the option of donating their remaining tax relief to the charity.
  3. Reviewing corporate Gift Aid.
  4. Launching a wide public promotional campaign illustrating the additional value of donating with Gift Aid.

We also recommend that the government considers the following areas as matters of priority:

  1. The implementation of a one year (or more) transition period for the sector to implement the new rules.
  2. That communication about any future consultation is more proactively distributed amongst the charitable sector by HM Treasury.
  3. That a standardised list of donor benefits outlining their value (preferably at cost to the charity) is consulted on, widely communicated to the sector and implemented with consistency across all HMRC offices.
  4. That additional or future donor benefits allowable for Gift Aid through this simplification exercise are not considered as the supply of goods and services, and therefore subject to VAT. The outcome would be an added layer of complexity rather than simplification.
  5. Any guidance that is published as a result of Gift Aid implication should outline carefully the interaction of Gift Aid with VAT.

We would be happy to engage with HM Treasury on any of these matters, or on any of the points raised above, with or on behalf of the arts and cultural sector.

For more information please contact:

Nicole McNeilly

Officer, Policy and Research

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