One of the very curious aspects about arts charities and their culture is that often they are missing an opportunity to claim tax relief, and specifically the Gift Aid that is available to them. If we’re not careful, DCMS will not be able to defend the arts to Treasury adequately, when quite rightly the Treasury can point to the huge amount of Gift Aid that goes unclaimed by arts charities.
In fact, rather than the arts lobby moaning about cuts, it is collective action from the arts and cultural sector that is now needed to support the likely forthcoming campaigns to help the public and donors to understand Gift Aid better, and to support any ensuing Gift Aid reform.
So what is Gift Aid?
Gift Aid has been increasing the value of donations received by charities by the level of basic rate tax for 25 years. It is by far the UK’s most widely used tax relief for charitable donations, estimated to contribute over £1.2bn a year to charities each year. By claiming Gift Aid, a charity can increase the value of a donation by 25% (based on the current basic rate of income tax). The charity’s claim is related to the income tax that the donor has paid on the money donated (with higher rate tax payers claiming the difference between the charity’s claim and the tax they finally paid). The benefit of this system is that Gift Aid can’t be treated as a Government subsidy, open to being cut in times of austerity.
Yet organisations such as CAF estimate that £750m of Gift Aid goes unclaimed each year. And according to HMRC data analysed by NCVO, only 65,000 charities make claims, meaning that well over half of all fundraising charities do not claim, with three quarters of small charities saying that they find the issues Gift Aid both complex and time-consuming.
So what about the arts?
Undoubtedly, under performing Gift Aid is a general problem in the charity sector. However, there are particular ways in which it has a disproportionate effect on arts organisations, mostly related to the complexity of the activities of arts and culture charities, and their supporter base. Generally, arts charities tend to have:
- a higher number of transactions with the taxpaying public (notably in the form of ticket sales).
- a higher proportion of donors that pay higher rate income tax (which is treated differently to basic rate donations).
- donor cultivation strategies and membership products that invoke rules restricting private benefits.
Yet, there have been some really positive steps to help arts organisations maximise the benefits of Gift Aid. For example, in his Summer Budget 2015, the Chancellor George Osborne increased the limit on the Gift Aid Small Donations Scheme from £5,000 to £8,000, adding £1,250 to the amount that arts organisations could claim on anonymous donations in foyer collections.
This scheme has been welcomed, however, a barrier has been the requirement for arts charities to demonstrate a two year history of regular Gift Aid claims which has limited the ability to claim for some arts organisations. Similarly, this Scheme would be better tailored for the arts and cultural sector if there wasn’t a matching requirement for donations, and also if arts charities could claim on non-cash donations.
There are also other types of small gifts where Gift Aid is falling short in helping arts organisations. For example, payments to arts and culture charities which provide a year-long admission or membership can qualify for Gift Aid. Where visitors make a voluntary donation of 10 percent or more on top of the admission price, an arts charity can claim Gift Aid on the entrance price and donation combined. However, this doesn’t help the performing arts charities reliant on ticket income. Indeed, if this scheme was extended to the performing arts then if an audience member bought a ticket for £40 and made an additional £4 donation, then that £40 could be worth an additional £11 to the organisation – complete gold dust. Overall, the proportion reclaimed is strongly related to the size of donations. The average unclaimed gift aid from cash donors ranges from £11 – £24. By contrast, three-quarters of payments over £2,000 a year are Gift-Aided.
Arts charities and their patrons, therefore, seldom let the biggest fish go, but they are losing out on scores of more plentiful claims – particularly modest sums paid by higher rate taxpayers. Given that the average higher rate taxpayer gives nearly five times more to charity than the average donor, this should be a target area for real Gift Aid growth in the arts.
Does it help philanthropy?
It’s true to say that HMRC has little evidence about whether Gift Aid actually works as an incentive for philanthropy. Many donors say that tax incentives don’t matter to them at all, and more than 30% of higher rate non-reclaimers say that they don’t know how to claim Gift Aid back. Yet simplifying the process would undoubtedly help. At present, higher rate taxpayers that claim Gift Aid have to receive the tax benefit themselves, yet if Government would give higher rate taxpayers the option of passing that tax relief onto the arts charities directly, undoubtedly there would be a boost to the value of philanthropic donations.
And what about benefits?
But perhaps the most pressing complexity surrounding Gift Aid for the arts lies in the issue of benefits. Many arts charities are put off by the complexity of the donor benefit rules, not least, as often the benefits provided to donors by arts charities are more complex and varied than for the mainstream charities. Legally there is a maximum value of the benefits that a charity can give to a donor whilst still claiming Gift Aid on the donation. But in the arts not all benefits are so easily valued and there are now three different methods governing how a charity should value a benefit. This usually leads to the Gift Aid issue being put on the ‘too difficult’ pile, or for arts organisations to have to seek expensive legal advice to ensure compliance.
Additionally, the law stipulates that the value of the benefit must be judged as the perceived value from the donor’s perspective. Surely, it would be much simpler if the value was laid out according to the cost of provision of the specific benefit, which anyway has to be justified within a charity’s accounts. This would help the arts immeasurably.
And finally, there is the issue of the charity benefits on corporate donations. Corporate Gift Aid was reformed in 2000 to try to simplify the system and increase giving by companies. However, it has had little success. And so another powerful lobbying area for arts organisations to HMRC could be to ask for consideration to be given to allow organisations to claim Gift Aid on corporate donations. In some areas the value would be hugely significant.
“Confusion, frustration and inconsistency have driven our campaign to more clearly understand the rules around claiming gift aid on split benefit/donation membership schemes. With HMRC’s co-operation we have put together a clear set of guidelines and introduced an online submission process, available to anyone wishing to submit their schemes for a compliancy check. There are other battles to be fought, but this is a great start in helping us maximise philanthropic giving to the arts.”
-Dorcas Morgan, Development Director, Park Theatre
