How can Xero provide Gift Aid to the HMRC? (Spoiler alert – this is only for the UK, and yes it can – with a little help!)
The charity sector is certainly sizable – according to the institute of
fundraising there are roughly 160,000 registered charities in addition to many informal charity groups with a combined income of around £43bn a year1. In the 2015/16 financial year the government gave £1,260m to charities through Gift Aid. This money provides a life line to many charities. I’ve heard it said by charities that they could not exist were it not for the Gift Aid donations they receive which tops up their income by 25%. Because this area is so vital to charities, and with Xero being able to record all the income, it’s an obvious function to take that data and pass it over to the HMRC – isn’t it?
Xero is marching across our green and pleasant land collecting subscribers at a rapid rate of knots. Being essentially a business focussed package there is a massive audience ready and waiting. Keeping accounts however is not the exclusive area of businesses, charities too must provide the government and their constituents the necessary facts and figures which can be produced via Xero. There is a difference though, whilst the VAT rules make businesses poorly paid tax collectors, the government will actually give money to the charity if the charity plays by the rules. The challenge is to get hold of it. This is done using their Gift Aid scheme.
How does this differ from other countries
When you donate, for most countries, the government in effect returns some of your own tax money to yourself (or wherever you direct it), as such it is entirely up to the individual where that returned tax money will go. In the UK, the HMRC plays its own tune – it allows the organisation itself to manage the headache of identifying who has paid sufficient tax (you can only claim back up to the amount that person has paid tax in that financial year) so that the organisation can do the claiming – bearing in mind the organisation has no means to see people’s taxable income, or how much has been donated to other organisations. Its therefore incumbent upon the individual to inform each organisation whether it is OK for the organisation to claim their Gift Aid money.
What are the key requirements for ling Gift Aid
Transactions. Clearly we need to get the information about the money received, date received and amount is all that’s required here.
Donor. We must know who the donor is. The information required about the donor covers a few items.
• Their name
• The house name or house number. The whole first line of the address is not to be sent.
• The postcode. This must be an uppercase, validly spaced and a postcode that follows the correct format.
Behind the scenes (i.e. not part of the claim) there is an important piece of evidence that is required and that is approval from the donor that it’s OK for you to claim the
Gift Aid on their transaction. This evidence should state over what period you can claim. In some circumstances they maybe existing donors and you can therefore claim retrospectively for as yet unclaimed amounts, in addition they can advise you that claims can only be up to a certain date after which you are not eligible to claim – and this period may restart. These issues are because you can only permit a claim up to the amount of tax a donor has paid and for some this is an issue. They also may well be giving to other organisations and they have to ensure the total claimed on their donations is within the required limits. Should you and they in combination fail to stay within the limits, the donor could be required by HMRC to top up the overpayment.
There is an option for small donations for the donor to be anonymous. Whilst this is helpful to many organisations, the charity would ideally capture details about their donors for follow up appeals at least.
So how can we use Xero to claim Gift Aid
Ok – so enough of the background – how does Xero manage all this. Well – good news first! It is great at enabling organisations to capture and record the transactional data. It can also record some information about the donors. It can enable you to separate the transactions that are for Gift Aid or not. It can also talk to the government by being able to manage and claim the VAT back, and then electronically filing it. Bad news – it doesn’t record enough detail about the donors, and it doesn’t talk to the government to claim Gift Aid.
What options do we have?
A solution is to track all your donations with a tracking category identifying that the transaction is a Gift Aid claimable transaction. These donations are connected to contacts as the donors, and then run a one of the new transaction reports with relevant filters to report for the Gift Aid tracking category item to give the transactions and contacts. This can then form the basis of the Gift Aid return. I say the basis, because the address information described above needs to be exported, tidied, and merged into this report. Once your data is in a fit state, copy and paste it into the official HMRC excel spreadsheet so that you can upload this.
This is one solution, there are likely other ways people have engineered but it’s hardly web 2.0! It’s very manual and requires a good degree of recording detailed information. Filing for an organisation of 150 donors every month could easily take 4 hrs a claim, which is valuable time and doesn’t get particularly quicker if the claim is only done quarterly (12hrs) or annually (36hrs).
All this means getting xero into charities is harder. It’s not uncommon to hear of organisations doing their returns quarterly or even annually simply because the effort of collating this information is too onerous to undertake on a more frequent basis. Surely, best practice, would be to do this monthly – or if you have just completed an event, straight away. There is no specific filing schedule that you must keep to unlike VAT, it’s up to you as an organisation. After all, the donations you have sweated hard to bring in through your creative fundraising efforts will be increased by 25% by the government, why let them keep it!
Is there an add-on?
Xero has built the platform, the add-on market place gives scope for verticals to solve niche problems. infoodle have recognised this problem and released their Gift Aid package to enable accountants to help charities, and for charities themselves who use xero to be able to make their claims quickly using the data available from within xero. They talk nicely to HMRC to file the claim and while we’re at it, why not click a button to post an invoice into xero to ensure the accruals are correct.
Now you can improve cashflow by moving to a more frequent filing and provide the audit data necessary.