Written by Charitable giving and the issue of “third sector” payments probably doesn’t get the attention it deserves from the financial services side. Charities have particular and in some cases unusual requirements around payments but most of them share a desire to make the process of giving frictionless and painless. For that reason, Comic Relief and other charities are very interested in a variety of emerging payments options out there and especially interested in the opportunities around the mobile. But there’s a particular issue around charitable giving in the UK because of the thing called “gift aid”. When UK taxpayers donate to charity, the charity can claim tax relief at the basic rate. So if I give a pound to charity the charity will actually get £1.20 provided that they can show to the tax authorities that I am indeed a UK taxpayer and that I paid more than 20p in tax last year.
It occurred to me, and other people too, that if some of the new payment systems under design right now could be “nudged” to deal with this particular requirement of the charity sector, including gift aid in their design somehow, then we (i.e., the payments industry) would have a genuine win-win to be proud of. For a relatively small cost we could generate a lot of additional money for charities. The Payments Council have been extremely supportive of this idea and I hope I won’t embarrass Miles Cheetham by singling him out as having done a terrific job in talking to the stakeholders — including Unicef, Verizon and Her Majesty’s Revenue and Customs (HMRC) — to open up the conversations. There has been real and significant progress at that level. Example: the HMRC “proposal 4” on digital platforms would allow for organisations to remember gift aid declarations. Therefore one might imagine Braintree style back-end payments integration which matched the proffered identity and the device to attributes on file to bundle the donation, the declaration and the personal details in an appropriate form (i.e. in a usable open data format for customers so that they can generate one simple report to fill out tax return at the end of the year and as PDFs on a CD for posting to the HMRC).
So to the technology forum. After an initial talk by Amanda Horton-Mastin, the Innovation Director at Comic Relief, we broke up into smaller groups to discuss the problem from different directions and come up with some ideas and we then reassembled to share the ideas in the traditional fashion.
My preferred solution would be to either add gift aid eligibility as an attribute to a financial services identity (but since no one is listening to my idea about a “money name” I think we will call that Plan B) or to create some sort of “charity name”. So just as my twitter name is at @dgwbirch and my Facebook name is [redacted] and my PayPal name is money@dgwbirch.com, so why couldn’t I create a charity name, say “»dgwbirch” and use that? We discussed a number of ideas around creating an infrastructural solution to support the immediate requirements of the M S (the (mobile front end to the Faster Payments Service), under development by Vocalink and PayForIt, the cross-industry direct-to-bill solution, but obviously any solution that we came up with would have to be available to other payment solutions. I should note that we had representatives from the “new” payments world (e.g., Paddle) as well as representatives from the mainstream at the meeting.
My take on all this is that it is an identity problem, not a payments problem. Therefore the right place to look for a solution is in the emerging identity sector and I rather bullied our group into agreeing that we should talk to the Governments approved identity providers (there are eight of them in the current IDA framework) to see if they might be able to provide a federated ID solution so that eligibility for gift aid could be determined automatically as part of the payment process. The idea of course is to stop requiring customers having to fill out gift aid declarations which in many cases they either don’t do or can’t do. A couple of the identity providers attended the meeting (Experian and PayPal) and I’m looking forward to seeing their feedback on some of the ideas that were raised.
Without stepping into more controversial territory, but in the interests of public understanding, I should flag up that the Payment Council’s previous attempt to build a bridge between the payments world and the identity world (what was then known as Project Gaia) didn’t get terribly far and so I think I sense a natural reluctance to want to dip a toe in that particular water again, but chatting to one or two people after the meeting I got the feeling that the time might be right to start work on the foundations of a new bridge. Identity has become such a problem (identity fraud is half of all fraud in the UK at the moment) that the need for a co-ordinated payments industry roadmap is now pressing.
I was very pleased to see that Miles had put up the suggestion of coordinating a discussion with the identity providers as one of the proposed next steps I have to say that I strongly support this idea and I hope to support to forthcoming discussions in a useful way.
This is a terrific opportunity for the UK payments industry to do something really good with little effort and marginal cost. Many thanks to Intellect and the Payments Council and the payments organisations that came along for contributing to a worthwhile and productive set of discussions.
These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers
Good stuff again Dave — perhaps Braintree can help one of these days soon!
1. You say Charitable giving and the issue of “third sector” payments probably doesn’t get the attention it deserves from the financial services side. You also say My take on all this is that it is an identity problem, not a payments problem. Perhaps charitable donations are getting exactly the amount of attention they deserve from payments people and perhaps they deserve more from the identity management world.
2. You say For a relatively small cost we could generate a lot of additional money for charities and This is a terrific opportunity for the UK payments industry to do something really good with little effort and marginal cost. Sandwiched in between those two statements, you say I should flag up that the Payment Council’s previous attempt to build a bridge between the payments world and the identity world (what was then known as Project Gaia) didn’t get terribly far and so I think I sense a natural reluctance to want to dip a toe in that particular water again. The cost may not be relatively small, the effort involved may not be very little, at least one previous attempt has failed and you give no indication how much additional money could be received by charities if a new attempt to link payments and identity succeeded.
3. I refer you to HMRC’s explanation of Gift Aid, from which you will see that, with the basic rate of tax at 20%, if you give £1 to a charity they will receive £1.25 and not £1.20 as you say.
4. You will also see that the application you develop with very little effort and at marginal cost will have to establish that the donor is an individual and is a UK taxpayer and has paid sufficient income tax or tax on savings deducted at source or tax on pensions or tax on investments or tax on rental income or capital gains tax to cover the £0.25 handed over to the charity by the Exchequer. If it doesn’t, then your application will have to reclaim the difference from the donor. It will also have to credit 40% taxpayers with £0.25 and 45% taxpayers with £0.3125. And it will have to allow for carrying back to the previous year. The application must consider the effect of the Gift Aided donation on people’s entitlement to tax credits and higher personal allowances and it must inform HMRC that the donation has been made. This is presumably the cheap and quick to develop “federated ID solution so that eligibility for gift aid could be determined automatically as part of the payment process” that you have in mind.
5. You say Charities … share a desire to make the process of giving frictionless and painless and The idea of course is to stop requiring customers having to fill out gift aid declarations which in many cases they either don’t do or can’t do. I refer you to Comic Relief’s donate page which shows that making the Gift Aid declaration involved clicking one box. There is next to no friction. As can be seen by the level of donations raised in one day – £93,968,291.
6. You say identity fraud is half of all fraud in the UK at the moment. The solutions you propose to the effectively non-existent friction problem could have the effect – with a lot of effort and a huge development cost – of exacerbating identity fraud by automating it.
7. You say we … would have a genuine win-win to be proud of and This is a terrific opportunity for the UK payments industry to do something really good. Would we? Is it? See 1. to 6. above.
8. If you go on telly next Red Nose Day (2014) and say My preferred solution would be to … add gift aid eligibility as an attribute to a financial services identity to Lenny Henry and tell Richard Curtis about your application which creates PDFs on a CD for posting to the HMRC, I will donate £1.
9. Have you ever read my play Don’t Worry? Especially that bit where the CEO of Google Ruritania says: Once these personal data stores are populated, where is the need for the Revenue? A tax farmer app can simply calculate the amount of tax due and make life more convenient for everyone by filing their tax returns for them and direct debiting the money from their bank accounts. It would be naïve of anyone not to see that that is the purpose of a personal data store and that that is also why the Revenue as currently constituted serves no purpose in the digital-by-default new world. It’s a re-hash of something I wrote back in October 2006, and it still seems to have legs.
Apologies for the stupid arithmetic mistake on the gift aid David, you are of course correct. As for the estimate of gift aid unclaimed by UK charities because they are do not have a correct declaration, it runs into tens if not hundreds of millions.
In a rational world, HMRC would be the AP so that when I give the charity my identity, the charity could bounce that identity to HMRC and get back a yes/no on gift aid.
1. A 45% taxpayer has to earn £1.81 gross to be left with £1 in his or her pocket after income tax. (He or she will have paid National Insurance as well, of course, but don’t let’s get too complicated.) If the Revenue give 25p of the 81p tax to a charity, they’re still left with 56p (and the National Insurance). Even after giving the taxpayer 31¼p back, the Revenue still has 24¾p left (and the National Insurance).
2. You say that unclaimed Gift Aid runs to tens or even hundreds of millions of pounds a year. I.e. we don’t even know the order of ten, it’s a very imprecise figure.
3. Whatever the figure is, is its loss to the charities a tragedy? No. Some of it is unavoidable. Donations made by corporates can’t be Gift Aided. Neither can donations made by non-UK taxpayers. Even UK-taxpaying individuals might consider it better to leave the Exchequer with 81p – after all, like Comic Relief, the Exchequer spends that money on domestic and overseas good causes, there aren’t any losers. There’s a lot of viscosity in the system, of course, you have to pay the staff, whether staff of the charities or public servants, not all the money gets through to the intended recipients, but … there we are.
3. The app you want to develop would need to know every donor’s tax situation – his or her assets, income and expenditure and tax history. As you know, really, that won’t be quick to develop, or cheap. Is it worth it to resolve a tragedy that isn’t a tragedy while running the risk that some people will promptly stop donating as a result and running the risk that the app will form the basis for massive fraud?
4. What about a simpler solution to the problem that isn’t a problem? How about the government just agrees to pay over (25-x)p on the total received by the charity. x might = say 10 to account for corporate and non-UK taxpayer donations, no further questions asked, fewer public servants needed to administer the system, fewer clerks in the charities, and no more meetings round at Intellect Towers specifying hammers to crack nuts.
5. The Revenue used to insist on us specifying our National Insurance number to qualify for Gift Aid. They’ve dropped that. They’re moving in the right direction. They might drop the need to tick the box as well if x is set high enough and then friction – although not viscosity – would fall to zero, and corporate and non-UK taxpayer donations would be included.
6. If the “real” plan is to find a successful hook to campaign for mobile payments and all-knowing tax farming-apps, then perhaps Intellect should look elsewhere. Shroud-waving by charities that can raise £93 million in a day and that want to take more money away from schools and hospitals could be counter-productive.
“What about a simpler solution to the problem that isn’t a problem? How about the government just agrees to pay over (25-x)p on the total received by the charity.”
This was discussed, but there are two issues. The charities don’t like it because it means the money stops being a tax relief and become public spending and also because they see benefits to knowing who a donor is (in the sense of a unique ID, not in terms of “real” identity).
The charities don’t like it because it means the money stops being a tax relief and become public spending and also because they see benefits to knowing who a donor is (in the sense of a unique ID, not in terms of “real” identity).
Whether it’s called “tax relief” or “public spending”, they’re getting the money, so what the charities “like” seems irrelevant.
As a matter of interest, what is this “unique ID” that the charities acquire through the Gift Aid system? The UTR? Why do they want it? What are the “benefits”?
As ever, it looks as though market distortions – in this case, tax breaks for Gift Aided donations – create perverse incentives. The unnamed charities you refer to end up (a) wanting to perpetuate a system which requires large numbers of public servants and charity clerks to administer it, the cost of which reduces the money available to the intended recipients and (b) resisting attempts to simplify the system. This agenda-nothing-to-do-with-their-objects makes them look sleazy and deters donations.
I digress. The answer(s) to the question “which unique ID?” would be interesting.
Dave – interesting blog. I’m one of the [many] people that has been talking to HMRC for some time about how we modernise the Gift Aid system, which up until April this year was largely paper based.
re your exchange with David: our estimate is that unclaimed Gift Aid is worht about £700m to charities.
re corporate gift aid. Donations by corporates can be gift aided, but its a different route. See http://www.hmrc.gov.uk/charities/guidance-notes/chapter3/sectionc.htm
David – it’s disappointing that you think charities are shroud waving. Gift Aid is a good way to encourage giving from donors with an ‘investor’ mindset – and from the perspective of the Treasury, this ultimately levers-in more resource to apply to public benefit goals. This is likely to reduce future calls on the Exchequer.
Happy to share some of the thinking we’ve done, though we are not digital experts as you guys are!
Cheers
Karl
What about a simpler solution to the problem that isn’t a problem? How about the government just agrees to pay over (25-x)p on the total received by the charity – 19/07/2013 at 18:46.
This was discussed, but there are two issues. The charities don’t like it because it means the money stops being a tax relief and become public spending and also because they see benefits to knowing who a donor is (in the sense of a unique ID, not in terms of “real” identity) – 19/07/2013 at 20:46
Could you expand on the charities’ objections to simplifying the Gift Aid system, Mr Wilding, the tax relief/public spending distinction and the unique ID problem.
(a) our estimate is that unclaimed Gift Aid is worht about £700m to charities and (b) Gift Aid is a good way to encourage giving from donors with an ‘investor’ mindset – and from the perspective of the Treasury, this ultimately levers-in more resource to apply to public benefit goals. This is likely to reduce future calls on the Exchequer – 24/07/2013 at 09:15
There is an apparent contradiction there, Mr Wilding. Taking £700 million from the kitty doesn’t look like reducing calls on the Exchequer, rather the opposite. At what date in the future do you estimate that the call on the Exchequer will be reduced? By how much? And while we’re waiting, which public spending programmes would you expect to see cut to pay for this £700 million of tax relief?
David
On simply paying charities an extra 25p: as I think Dave has already noted, Gift Aid isn’t public spending, it is income tax foregone by the Exchequer. As such, if you give every charity the tax, you are making an assumption that everyone is an income tax payer which they are not. There’s an added complication in the form of higher rate taxpayers, who themselves reclaim the difference between the basic and higher rates against their donation.
If this tax foregone was turned into public spending this would mean that the amounts were subject to the political uncertainty of an annual budget cycle – though Gift Aid is of course not immune to this.
I’m not entirely sure what the unique ID point relates to; but I am aware that charities want to build regular, engaged relationships with donors and in that sense want to know who they are. But this might also refer to the point that in order to reclaim tax against a donation, HMRC demands that charities know the contact details of the donor so that their claim to pay income tax can be verified against HMRC records.
On my apparent contradiction: you raise a fair point that is at the nub of many disagreements about the tax system as a whole, not just Gift Aid. Does allowing individuals to make pension contributions from untaxed income – again, foregoing income to the exchequer – reduce future calls upon the Exchequer from people who otherwise would have saved more effectively for their retirement? Does giving companies R&D tax credits, foregoing revenue to the exchequer, raise future revenue because their innovations result in greater economic growth? I suspect yes in all cases. We dont always have the evidence though – and in some cases, the evidence of economic models used to justify such tax breaks seems to me to be a mix of guesswork and ideology.
It’s not good enough for charities to simply say we are doing good. They should have to show that they provide public benefit. And in return for delivering that benefit, and encouraging donors to support that, the gift aid system benefits society I think.