The scale of the numbers should act as a sobering reminder to every charity boss in the UK. Recent statistics from HMRC showed that UK charities are missing out on a total of £560 million in unclaimed Gift Aid reclaims per year.
This is money that could be paying for thousands of programmes, helping people in communities and delivering real change where it is needed across the charitable sector. But even with that clear economic benefit, hundreds of thousands of eligible donations fall through the cracks annually as charities continue to operate with less.
Understanding Gift Aid
One of the UK’s most generous tax reliefs for charities is Gift Aid — first officially introduced as we know it today in 2000. The scheme provides for the refunding of basic rate tax on donations by UK taxpayers to registered charities. The value of such tax relief is 25% of the donation received by a charity. That is for every £100 donated to Make Some Noise by a UK taxpayer, we could get an additional £25 from HMRC meaning your donation adds up to £125 of funding. This is a win-win as higher rate taxpayers can also claim additional relief on their personal tax returns.
The Reality Gap
However, given this compelling case for strategic planning, the truth of the matter is that the charitable world today still lags behind. So this figure is a mere drop in the ocean compared what could be claimed theoretically, according to HMRC’s own figures, which show Gift Aid claims increasing steadily over the past decade and reaching around £1.3 billion in the most recent accounting period. The potential value of claims could be more than £1.86 billion annually if all eligible donations were processed correctly through Gift Aid, according to independent analysis.
The Gap Between Big and Small Charities
The lost opportunity here is greater still when you consider that unclaimed Gift Aid is spread unevenly across different types of charity. Large charities with their own finance function and robust systems will typically reach claim rates of 85-95% on eligible donations. These are the organisations that have invested heavily in their systems, staff and, more often than not Gift Aid software UK which takes much of the administrative side away from processing claims.
By contrast, small charities and community organisations typically fail to realise claim rates of much above 40-50 per cent of the donations they are eligible to receive. Research from the Charity Finance Group shows that charities with incomes under £100,000 a year are least likely to benefit from Gift Aid — some of the smallest have claimed less than 20% of their possible Gift Aid entitlement. The cleavage gives rise to a perverse situation where the organisations that need extra funding the most are in fact most improbable to receive it.
The Big Hurdles Charities Face
Administrative Burden. Why is this the case is a very complicated and multi-layered question? One of the largest obstacles is administrative burden, especially for smaller organizations with few staff to facilitate data and implement change. The typical process for collecting Gift Aid requires charities to keep detailed records about donors — such their full name, address and a signed declaration. These answers then have to be cross-referenced against donation records, with HMRC claims ocmpleted using designated forms and format.
The administrative overhead is so huge even for smaller charities that many of the them cannot afford to spend this kind of money on a database. Many volunteer treasurers and part-time finance staff do not have the time, resources or expertise to manage Gift Aid claims properly. Even when organisations understand the financial gain to be made, often a fear of making errors and subjecting to HMRC penalties will result in organisations not claiming.
Record-Keeping Challenges. Record-keeping challenges compound these difficulties. There are a great number of charities that find it difficult to keep the level of knowledge required for gift aid, especially if they’re heavily dependent on cash donations and informal fundraising events. Donations are not operational, so it is not as easy to declare as in the example above, and often without a proper donor management systems matching donations to declarations becomes a manual time-consuming task that can forget gifts or give double credit. At that time, the regulations also reinforced that individuals must keep records for at least four years following the accounting period which relates to a claim; this adds an extra bulky burden on organisations with limited capacity in storing and filing more documents.
Technology Gaps. A large factor in the Gift Aid claiming gap is the fact that charities, as a sector, have failed to keep up with innovation when compared to other industries. Smaller charities, in particular, are still dependent on paper-based systems, spreadsheets or rudimentary accounting software without Gift Aid capabilities. But the absence of technology led a struggle with donor eligibility tracking, declaration management and generating reports for HMRC submissions.
Modern Gift Aid Software – The Technology Solution
In an attempt to progress the Gift Aid system these challenges are now starting to be addressed through advanced Gift Aid software capabilities providing charities with new functionality that can help automate and simplify Gift Aid. The latest Gift Aid software platforms are capable of handling all your donor management, tracking of donor data as a matter of course, declaration management and then selecting eligible donations that qualify for the Tax reclaims. The perfect turnkey solution incorporates easily with existing fundraising and accounting systems, streamlining processes by reducing manual steps that can introduce mistakes.
Only a few years ago, features that are available in modern equivalents of Gift Aid software would have been almost unimaginable. Donation records can be carefully measured against declaration databases and potential Gift Aid opportunities pick out using automated donor matching algorithms. Active eligibility check ensures that claims are correct and comply with HMRC requirements. Advanced reporting tools create the relevant documentation for submission to HMRC and comprehensive audit trails provide the detailed records needed for compliance purposes.
Importantly, modern Gift Aid software platforms like the ones we just highlighted are user-friendly since users typically do not possess high-technical acumen. Guided workflows, intuitive interfaces and robust support resources enable organizations to test and iterate on their Gift Aid process without the need for in-depth technical know-how. Even the smallest of charitable enterprises can get the benefits of advanced Gift Aid management, without having to worry with complex IT infrastructure — thanks to cloud-based GADs.
The financial benefits of having developed effective Gift Aid processes are not restricted to the direct cash. So being able to do Gift Aid better can mean the difference between continuing as is, and growing into new areas which benefits even more of our client charities. Supplemental funds allow for professional development, infrastructure advances, and strategic investments to be made that can increase the sustainability and impact of programs over time.
If we take the example of a medium sized community charity with an annual donation income of £200,000. 60% of their donors are UK taxpayers eligible for Gift Aid If 60% of the charities donors are UK tax payers and so can gift aid but they only claim on 40% (I`m being nice!), that is £15,000 just potentially down the drain! That £75,000 over five years will be completely lost funding that could have gone into more programmes, staff roles or major next steps to place the organisation on a longer-term costing.
The Sector-Wide Impact
And that adds up to a huge impact across the charitable sector. The £560 million of unclaimed Gift Aid is a pot of funding that could pay for thousands more charity workers, countless community projects and services to the vulnerable across the UK. With many charities under a lot of financial pressure due to the pandemic, facing more demand for their services with less funding than normal (few of those Xmas shoppers will invest in social causes, however wondrous your work is) this wasted opportunity has particularly tragic parallels.
HMRC’s Response and Ongoing Challenges
HMRC has acknowledged the unclaimed Gift Aid issue and has made steps towards making the process easier for people to claim back donations, therefore encouraging more widespread claiming. In addition, the introduction of online claiming systems has simplified administration, and a range of new support resources are now available—such as guidance materials—to help charities to better understand their obligations and take advantage of opportunities. The Small Donations Scheme, which as Welch explains is an area of concern for his organisation, has been welcomed by HMRC, but provides some comfort to charities dependent on less formal fundraising mechanisms.
While these improvements are notable, significant challenges remain. Many organisations still struggle with what is perhaps the most basic well-building block problems of their ability to collect and manage data from donors. There is often a cultural resistance to technology adoption within elements of the charity sector, but this means that slower rolls out of more efficient systems do take place. Budget can be a barrier to technology investments and often smaller charities may not have access to the tools which are likely to substantially improve their Gift Aid claiming rates.
Sector education continues, technology is increasingly adopted and much-needed support for smaller players come together in a mix. Umbrella bodies and sector support organisations are key to promoting Gift Aid awareness and providing practical support on its application. Training programs, best practice sharing and peer-to-peer learning programs can play a significant role in capacity building of our sector.
Technology providers need to work harder to ensure that solutions for smaller charities are truly accessible. In other words, they need more than UI/UX — they might need new pricing and support models or be willing to integrate with the existing charity systems. The best Gift Aid software UK platforms know that their job is more than passing out technology, but also includes training, support and ongoing partnership for their charity clients.
Bricks and Mortar Charities
Individual charities will need to carry out a full audit of their existing processes in order to identify where they can improve Gift Aid claiming rates. This audit needs to investigate the data capture processes including any on-going management of declarations, record keeping and claiming. Understanding the starting point is essential for creating specific strategies to improve anything.
For most charities, investment in the right technology will likely represent the single greatest action they can take. In almost all cases the ROI on a new Gift Aid software solution can be realised within 12 months of purchase. When it comes to likely solutions, charities need to review a few issues including usability, integration quality, support services and scalability.
The training of staff and procedures which are developed go hand in hand-important HERMES elements for the overall management of Gift Aid. The product was and is extremely capable but there is no substitute for people who have technical (the nuts bolts etc of the system) and expert knowledge of Gift Aid regulations. Gift Aid training sessions, well-detailed procedures and continuous support can contribute to Gift Aid processes being both effective and compliant in the long-term.
Improving Gift Aid claiming rates should not come at the expense of the donor experience. Greater engagement levels can be achieved with effective communication of Gift Aid benefits, simplified declaration processes and by being clear on how any additional funding will be appropriated. Online donation platforms using methods such as digital declarations, can increase declaration rates and minimise administration.
Looking to the Future
As a result, the future looks both challenging and promising for the sector and its ability to maximise Gift Aid. Further digitalisation of the instruments you use to raise funds offers new and exciting opportunities for collecting and managing donor data more efficiently. Yet with the increasingly stringent scope of evolving privacy regulation combined with growing sensitivity among donors to the uses of their personal information, charities must now operate in a state of competitive tension between efficiency versus transparency/consent management.
The COVID-19 pandemic has driven a considerable portion of the charitable sector towards digital fundraising and many organisations jumped on the bandwagon quickly by setting up online fundraising options and instating digital engagement strategies. This step-change in the technology we are now using means that we can potentially do more with our Gift Aid management, but it does require investment in training and integration efforts to unlock those benefits.
Future Gift Aid claiming tactics maybe influenced by regulatory changes as well. Gift Aid, reformedNew consultations concerning modernisation and simplification of the many Gift Aid regulationsHM Revenue and Customs continues to review and improve Gift Aid rules. Those charities which have the most flexible, technology-enabled processes are best placed to transform and beg a tactical advantage in compliance whilst also boosting their potential claim value.
Conclusion: Time for Action
Thousands of charities are missing out on millions (up to £560m) in Gift Aid — not just lost financial opportunities; but the difference in what the sector should be doing and what it is capable of. Each dollar unspent means services went unserviced, communities unreached and lives unchanged. This will only be tackled through a multi-faceted approach that involves charities themselves, as well as sector support organisations, tech providers and governments.
The simple ability and tools to transform Gift Aid claiming rates overnight already are there, we just need the will and incentive. UK Gift Aid software is useful to charities, as an aid of gift work flows are streamlined, increasing accuracy and claim amounts. Case studies from companies that has successfully had a holistic Gift Aid strategy demonstrate just how life changing this extra cash can be.
The challenge for the sector isn’t whether you can make gift aid claiming work better, but how fast and well you can make this happen. This hard cap represents one of the easiest means for individual charities to grow their income outside of funding more fundraising or donor acquisition and those who decide to invest in better covenants are availability it by combining such activity with greater use of best Gift Aid processes.
The time for action is now. As the sector faces both economic hardship and growing demand for charitable services, it cannot afford to leave £560 million unclaimed. But by adopting tech, providing training, and ensuring operational efficiency of Gift Aid processes, UK charities can untap this sizeable sum, and pour those resources back into the crucial work they do in local communities up and down the country. Whoever the beneficiaries of charitable services, the donors who support these causes and indeed the organisations themselves only stands to gain by closing this gap and know they have accessed anything they were entitled to.
