My Lords, the Small Charitable Donations and Childcare Payments Bill is a short Bill—just nine clauses—and a technical Bill, but it is not unimportant. Indeed, contained within it are positive and pragmatic changes intended to simplify and improve the operation of both the gift aid small donations scheme and the tax-free childcare scheme.
The charity sector is one of this nation’s great assets. Many noble Lords will have experience of working for charities or serving as trustees and patrons. They will therefore be familiar with the important work charities do, as well as the challenges and pressures they face. Of course, noble Lords serving on the Select Committee on Charities are currently gathering evidence on charity governance and the challenges of sustaining the charity sector.
The Government recognise the importance of the charity sector and it is for that reason that they provide support to charities and donors through a generous package of tax relief worth more than £5 billion last year. This is up from £4.7 billion in 2014-15 and £4.4 billion in 2013-14. One of the most valuable tax reliefs available to charities is gift aid, which was worth around £1.3 billion last year. Gift aid allows charities to reclaim from HMRC the basic rate of tax paid by individuals on their donations.
To claim gift aid, a charity must obtain a declaration from the donor confirming their status as a UK taxpayer. This process works well, particularly for large donations, and I am sure noble Lords will be pleased to hear that gift aid repayments to charities continue to grow. But the Government recognise that there are circumstances where it is just not practical or feasible for fundraisers to stop donors and obtain a gift aid declaration, leading to a gap in the amount of gift aid claimed. The gift aid small donations scheme is intended to help address this gap by allowing charities to claim a gift-aid-style top-up payment on small cash donations.
Noble Lords present may recall that, during the passage of the Small Charitable Donations Act 2012, the Government committed to a full review of the gift aid small donations scheme after three years of operation. The Bill is the result of that review and the Government have listened to the charity sector. Indeed, the vast majority of the provisions within the Bill were originally put forward by the charity sector itself.
The Bill will make the gift aid small donations scheme simpler and more flexible so that it can benefit a greater number of charities and donations. I pay tribute to the hundreds of charities, representative
bodies and others that took the time to engage with HMRC during the course of the review. I am pleased to report that the reforms in the Bill are forecast to benefit charities by up to £15 million per year. The new rules will particularly benefit the up to 9,000 new charities that apply for recognition by HMRC each year.
The Bill is intended to make life easier for charities. It will therefore substantially simplify the eligibility criteria of the gift aid small donations scheme, making it much easier for smaller and newer charities to access top-up payments. Charities will no longer need to wait for two years before making their initial claim, nor will they need to have claimed gift aid in at least two out of the previous four tax years, as they do currently.
Removing these rules will leave just one remaining condition that charities must meet to access payments: the gift aid matching rule. This rule requires charities to claim gift aid of £1 for every £10 claimed under the gift aid small donations scheme. It is necessary to retain this rule to maintain a link between the small donations scheme and the full gift aid scheme. A link to the main scheme is important, both as a means of incentivising charities to engage with gift aid and to allow HMRC to ensure that charities comply with the rules. It is the Government’s view that these changes strike the right balance between simplifying the scheme—making life easier for charities—and maintaining an effective deterrent against the dishonest minority who would seek to exploit the rules.
The Bill also relaxes and clarifies the operation of the community buildings rules. These rules are intended to deliver fairness and broad parity of treatment for charities structured in different ways. Without these rules some charities would be able to claim vastly more than others for no reason other than differences in the way the charities are structured. For many charities, the community buildings rules work very well. For example, many local churches have been able to benefit from the rules. Indeed, the Archbishops’ Council recently commented:
“Parishes were able to claim record levels of Gift Aid, with a significant part of this increase arising from the use of the Gift Aid Small Donations scheme”.
This is to be welcomed and we of course want churches to continue to benefit from the valuable extra income provided by the gift aid small donations scheme.
However, it has also become clear that other charities have been less able to fully utilise their community buildings allowances, most notably Scouts and other uniformed groups which, although based in community buildings, undertake most of their collections outside the building. The Bill therefore relaxes the community buildings rules to allow charities to include donations collected outside the building but within the local area under their community buildings allowance. This change could benefit any local charity that regularly meets in a community building, such as a village hall or community centre. There is no requirement for the charity to own the building outright.
The Bill will also future-proof the gift aid small donations scheme. The scheme is intended to allow charities to claim a gift-aid-style payment on small, fleeting donations, such as those placed into a collection
tin or church offering. However, noble Lords will be aware that cash transactions are declining as electronic payments become ever more prevalent. The Government have already worked with the charity sector to put processes in place for claiming gift aid on most forms of electronic donations, such as SMS and online.
During the review of the scheme, charity representatives demonstrated examples of the innovative new contactless collection technology being developed. The Government accept that in many ways these donations are analogous to the small cash donations made on the spur of the moment by passing individuals. The transactions are small, almost instant, and there is very little time to stop the donor to solicit a gift aid declaration. The Bill will therefore ensure that the gift aid small donations scheme remains relevant for years to come by opening it up to donations received using contactless collection terminals.
As I have explained, the Government are taking action to simplify the gift aid small donations scheme so that more charities are able to benefit. Last year 21,300 charities claimed a total of £26 million in top-up payments, a not insignificant amount, but we accept that it is lower than forecast. HMRC will therefore undertake a targeted communications exercise to promote greater awareness of the gift aid small donations scheme.
I shall now address the tax-free childcare provisions contained in one clause of the Bill. This clause is concise and technical but it nevertheless effects important changes and reflects the elements of the tax-free childcare scheme which make it innovative and cutting-edge. The Government brought the foundation stone of this ambitious scheme, the Childcare Payments Act, before noble Lords in 2014. Secondary legislation followed soon after and now, in 2016, the Government are testing tax-free childcare with parents and preparing to launch it in early 2017. Tax-free childcare will be rolled out gradually and responsibly, with parents of the youngest children being invited to join the scheme first until it is available to all eligible parents by the end of 2017.
Around 2 million families will be eligible for tax-free childcare in the first year and may access up to £2,000 of government support with childcare costs per child per year or £4,000 for disabled children. Parents will apply through a straightforward online process and open a childcare account for each child. They may then pay money into their accounts, and for every £8 a parent pays in, the Government will pay in an additional £2. The balance may then be spent on registered childcare needed to allow parents to work.
I now turn to the substance of the clause. The first change relates to the mechanism by which parents retain access to the scheme by reconfirming each quarter that they remain eligible to receive tax-free childcare. A successful reconfirmation ensures access to government support for the coming entitlement period. Entitlement periods standardly last for three months, but HMRC may vary them when new accounts are opened or to ensure alignment of dates—for instance, when a further child is added or when a new household is formed. The Bill will allow greater flexibility over how entitlement period dates can be amended. This will
ensure that parents’ childcare account dates will align so that the number of times they need to reconfirm their eligibility for tax-free childcare can be minimised.
The other changes affect how parents who are dissatisfied with HMRC decisions can ask for them to be reviewed. They will establish standard, online forms that parents can use if they want to query a decision. This will make the process a lot more straightforward and convenient and makes for a truly digital scheme. However, we will still make sure that everyone is able to ask for a review. Those who, for any reason, are unable to use the online form will still be able to raise their queries using the non-digital channels that they used in applying for the scheme.
The Bill will make the gift aid small donations scheme more flexible and generous so that it can benefit a greater number of charities and donations. It will also make it easier for parents to interact with tax-free childcare. This Bill is good news for charities and for working parents, and I commend it to your Lordships.
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