Over the past few weeks we have seen uproar about the giving cap (aimed at the wealthy who gave £1bn to charities in 2010) However, have you noticed the consultation on the Gift Aid Scheme for smaller donations? If not, you need to!

It appears that the government will be giving £1,250 to every charity, or a cool £200 million... for not doing anything! Apart, that is, from dealing with the red tape associated with the Gift Aid Scheme (and the administration itself seems more geared to larger organisations).

The Charity Commission stats for December 2011 show that the 150,000 charities generating under £500,000 of income a year in total generated £2.6 billion in voluntary income. However of this number, 132,000 are small charities with less than £100,000 income, and the £1,250 top up would make a significant difference to them. 

However, for them the threat is that the consultation brings in even more red tape with a "matching" scheme (i.e. you can claim the £1250 top-up on £5,000 of non-gift aided income only if you have £5,000 of gift aided claims). As the average voluntary donation per organisation is in fact only £6,000, the average top-up claimed can be only on £3,000 not £5,000 - you do the maths!

Oops! That means that the £200 million gift from the government has in fact become £120 million. Factor into this that organisations a) will not necessarily apply for registration on day one, and b) won't be able to submit a claim for three years (compliance) and you begin to see the issue.

I'd be interested to know how many charities below £500,000 are registered for Gift Aid - I bet it is nowhere near 150,000...!

So all in all we have been taxed at the top end, and the "gift" at the bottom range is a veritable wolf in sheep's clothing. What's next - a tax on the impact that charities have?

If you want to take part in the consultation download the HMRC consultation document (it is 32 pages long). Pages 13 and 25 cover the points raised above. You only have until the 25 May 2012 to make a submission on the consultation.

We will be doing this on behalf of our clients as we feel the approach taken by the government and HMRC is heavy handed and potentially unworkable for smaller organisations.