Last week the Charity Tax Commission published a set of recommended reforms to UK tax law including a proposed centralised database for Gift Aid declarations. This is an excellent idea, and wouldn’t be too hard to build.
The proposal is a relatively straightforward one: “Launch a Universal Gift Aid Declaration Database (UGADD) – this would provide a single, enduring declaration which individuals can make covering all their subsequent gifts to charities.” Donors would sign a Gift Aid declaration that would be stored in a central database and made available to all charities.
The problem with Gift Aid
A lot of Gift Aid goes unclaimed (HMRC research suggests around £560 million). The report suggests a number of reasons why this is the case:
- A lack of opportunities for donors to add Gift Aid
- A misunderstanding of the relief
- Not recognising eligibility
- Administrative burden
- The complexity of the regulations
- Challenges associated with establishing an audit trail for donations
Importantly, smaller charities, who benefit the most from Gift Aid, are discouraged from claiming it for the reasons above.
In this chart from the report it’s clear that Gift Aid makes up a larger percentage of income for smaller charities.
Some of these problems can be mitigated by automated Gift Aid systems. These can be provided by payment providers or CRM systems. This helps with part of the problem, conveniently storing declarations and reducing the administrative burden of making claims. But the potential for a centralised database of Gift Aid declarations is significant: This can help with determining eligibility (charities could ask the database whether this donor already has a Gift Aid declaration), simplifying audit trails (charities wouldn’t have to store declarations), and making it easier for donors to add Gift Aid details (they would only need to complete a declaration once).
How might it work?
The database itself is relatively simple. It needs to store a Gift Aid declaration for each tax-payer. Users also need to be able to log in to a system to update their information. Each user needs to be given a unique ID, or “giving number”. This can be used whenever someone donates - or generated when they add their Gift Aid details for the first time. Charities only need to store a giving number for each donor - there is no longer any need to store the declaration itself.
During online donation flows charities can ask the donor for their giving number. If the donor exists in the database, there's no need to collect Gift Aid information. If they’re not in the database then the donor’s details can be collected and submitted to the database. This means that the database can be built up organically over time by donors, a collaborative effort across the sector for the benefit of charities and donors alike. Charities only need to store a giving number for each donor - there is no longer any need to store the declaration itself.
Naturally, we need to think about things with our GDPR hats on.
The report identifies a need to keep up with changing donation trends: “It is becoming more and more common for donors to donate to charities via text message, as the use of smartphones increases, and to make impulse donations (the RSPCA, for example, reports 70 per cent year-on-year growth of these types of donation)”. There is a potential here to make collecting Gift Aid information much simpler via methods like mobile. The user can provide their giving number rather than needing to fill in a Gift Aid declaration of text messages.
Naturally we need to think about things with our GDPR hats on. We need to ensure that consent is collected along with each new Gift Aid declaration and that donors are very clearly informed that their data will be stored on a centralised database and made available to be queried by other charities.
Who should operate the database?
The natural operator for this database seems to be HMRC, who could store these details along with other tax information. Not everyone who claims gift aid does a tax return (11.5 million people - about 20% of potential donors) and therefore the majority of people don’t have an account with HMRC. Perhaps HMRC might not be the best organisation to host this database, so what are the alternatives?
Importantly, the database is relatively simple and declarations can be stored outside of the tax system - just like they are now. I’ve outlined some options here:
The Charities Commission
The Charities Commission already store a queryable database of charity information. Maintaining a database of donors doesn’t seem like a radical departure from their remit.
A public benefit organisation like Nominet
Nominet is a “profit with a purpose” organisation responsible for maintaining the .uk internet registry. An independent organisation like Nominet could be a good option for maintaining the database. Adam Leach, Managing Director for New Ventures at Nominet considers this to be the sort of project that Nominet could do. "Nominet has a huge amount of experience in running large scale, resilient, trusted databases. This is would be technically feasible for us."
A collaboration between charities
As long as GDPR rules are observed carefully there’s no reason a private collaboration between charities couldn’t share data and make this database available without a centralised authority being in charge of it. A membership organisation could operate a database and make it available to charities who sign up to access it.
The significant question here is: Who’s going to pay for it? It seems likely that until this question is answered it won’t be clear which option is the most sensible. If funding for a database cannot be found from public budgets the only available option may be for a commercial option to be funded by charities themselves. Other options are still only available if the law is changed such that charities are not required to collect declarations themselves.
A Universal Gift Aid Declaration Database is a good idea, the benefits to charities and donors seem clear, and it’s not too hard to build. If the money can be found to build and maintain this database it is a very worthwhile endeavour.
You can read the press release about the Charity Tax Commission report here.
You can read the full report and research here.