Each year it is estimated that charity retailers claim £45m in gift aid* from HMRC. And in August over 30 charities, representing over 1,500 charity shops converged on Birmingham, to attend a conference, organised by Cybertill, that discussed the changing requirements of the gift aid scheme
In April 2013 HMRC introduced a new process to the gift aid system which in turn impacted on how charity retailers manage their gift aid schemes. Under the old arrangement, after goods are sold, but before the charity makes a Gift Aid claim a letter is sent to the owner of the goods to advise them of the sale and the proceeds raised.
This in turn has led to donors receiving a large amount of letters from charities. It is not unusual for smaller charities to have thousands of donors and larger and national charities to have tens or hundreds of thousands of donors. So for charities managing this communication process it is not only an expensive burden but also labour intensive.
“At British Red Cross we have over 250,000 customers who have signed up to gift aid their donations at our shops. So the new legislation has a huge impact on British Red Cross. The conference was much needed as it enabled us to raise some specific questions about the new schemes. It also proved to be an excellent collaborative platform for charity retailers to share ideas on how to increase gift aid revenues,” commented Mike Picken, Head of Commercial Development at British Red Cross.
The new simplified methods (called A and B) allow customers to donate goods up to an agreed limit without any letters being sent. These two limits (or as HMRC refer to them as ‘thresholds’) have been set as £100 (Method A) and £1000 (Method B). Only charities that have a separate trading company can use Method B. Both methods greatly reduce the need for charities to send out letters to donors helping reduce costs and complexity.
At the conference charities were made aware of their responsibilities and the need to follow the legislation. As HMRC does audit charities and looks at how charities claim gift aid to ensure all claims are accurate, as incorrect ones can be penalised.
There are however caveats to these new thresholds. It means that charities must seek their customers’ permission to switch them from their current gift aid agreement to either of the new threshold processes. Charities must be able to prove to HMRC, should be they audited, that their customers have consented to be switched to either of the new schemes.
Speaking at the conference were several representatives from HMRC, Deputy Chief Executive of the Charity Retail Association Wendy Mitchell, as well as several individuals from Cybertill. “The speakers were able to share their expertise and advise charities on the new processes as well as specific details around the communication. From that we will reword our letters to ensure they meet with the new legislation,” stated Sue Sumner, Retail and Trading Manager at Lindsey Lodge Hospice.
The conference also covered the new online submissions. From October 2013 how charities submit their claims is also changing. Online submissions will become the preferred way for submitting claims. “Online submissions will streamline our gift aid claims. With the Cybertill system it automates this process as their new submissions platform links directly with HMRC’s submissions portal,” commented Bobby Grant, Retail Director at Prince and Princess of Wales Hospice. Importantly for charities the new HMRC online submissions platform means they will be paid their Gift Aid claims a lot quicker, it will typically take just three days, whereas with the old submission scheme it took around 28 days.
Cybertill, who organised the conference, supplies gift aid and retail software to around one in three of all the charity shops in the UK. Ian Tomlinson, CEO of Cybertill, commented. “With so much changing legislation it is important that charities have a platform to both understand the changes but also ask questions of HMRC and the Charity Retail Association. This gives many the confidence moving forward that their processes are watertight and adhere to the gift aid guidelines.”
“This conference was really important in terms of sharing information and ensuring that charities really understand the requirements around Gift Aid and the new changes to the processes which have just been introduced by HMRC for charity shops,” commented Wendy Mitchell, Deputy Chief Executive at the Charity Retail Association.
*Gift Aid explained. When customers donate goods to a charity, if they agree (and sign the subsequent declaration) then the charity can claim back the tax the individual would have paid on that donation, this is called gift aid. The charity will receive the additional funds (from HMRC) once the donated goods are sold and they have submitted their claims. Typically gift aid is fixed at 25% of the value of the item sold.
So if a charity sells a donated jacket for £10 (and the donor had signed up to the charity’s gift aid scheme) the charity can claim 25% of the sale value in gift aid, which in this case is an additional £2.50.
