Charities will still be able to reclaim 28 pence for every pound donated, rather than the anticipated drop in line with the falling income tax rate, for the next three years, the Chancellor Alastair Darling announced in Wednesday’s Budget.

This is estimated to give charities an extra £300m in Gift Aid till 2011.

The 2p cut in the basic rate of tax, announced last year, would have meant that charities could reclaim only 25p per pound donated, rather than the current 28p. The difference of 3p is because of the way Gift Aid is calculated. According to analysis by the Charities Aid Foundation, this could have resulted in an annual loss of £71m to the sector.

The Chancellor also announced a major reform to the Gift Aid auditing and record-keeping process, a comprehensive programme to encourage the take-up of Gift Aid by smaller charities, and a redesign of its Gift Aid guidance.

The Gift Aid announcement may disappoint the six umbrella bodies that had canvassed Government for a major overhaul of the scheme.  They are advocating for an accounts-based system, whereby charities are allowed to claim Gift Aid at a fixed annual rate based on the proportion of donations that comes to them from taxpayers. This had been opposed by Charities Aid Foundation (CAF) on the grounds that “proponents fail to understand that Gift Aid is a donor incentive and is not in the gift of the charity or the Government.”  

Government said its consultation had generated suggestions of ways to alter the mechanics of the system to make it easier for some donors to give, and that it would continue to work with charities and donors to better understand donor behaviour; and will use that to inform further thinking about Gift Aid.  Philanthropy UK welcomes this further consultation, which it called for in its response to Government’s initial Gift Aid consultation last year.

Also announced in the Budget, the Chancellor will consult on how to simplify anti-avoidance legislation relating to substantial donors, so that innocent transactions are not at risk of being captured within the rules. Philanthropy UK is pleased that Government has listened to our and other charities’ concerns about the significant and widespread unintended consequences that this legislation is having. 

To download the full Budget Report, visit the HM Treasury website.