ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in the taxpayer’s favour in principle. But it is expected to have no practical effect as it is in line with current practice. Change 76: Gift aid: a qualifying donation cannot be a deductible expense in computing income from any source: section 416
This change clarifies that a “qualifying donation” for gift aid purposes does not include a payment that is deductible in computing an individual’s income from any source.
Until the gift aid rules were introduced by FA 1990, a donation could only qualify as a charitable donation if it was an annual payment, eg under a covenant. And section 74(1)(m) of ICTA was generally taken to mean that an annual payment was not a deductible expense in computing trading income. The practical result was that, except in the case of payments falling within ESC B7 (benevolent gifts by traders), a charitable donation could not be a deductible expense of a trader.
Section 25 of FA 1990 introduced the gift aid rules. As a result, a single donation of money to a charity could be made, and give rise to an income tax repayment for the charity and relief for the donor, even if (unlike a payment under a covenant) it was not made as a result of a legal obligation.
Section 25(6) of FA 1990, in its original form, provided that the Income Tax Acts were to have effect as if such payments were covenanted payments to charity. Because such payments were not annual payments, later subsections re-enacted various operative provisions of sections 348 to 350 of ICTA to apply to gift aid payments. This legislation, with amendments, ran side by side with the rules for true covenanted payments until FA 2000. But there was no enactment in section 25 of FA 1990 that applied section 74(1)(m) of ICTA to prevent a gift aid payment from being a trading deduction. So it became theoretically possible for such a payment to be an allowable deduction, depending on the applicability of other provisions of section 74(1).
Section 39 of FA 2000 radically amended section 25 of FA 1990, in effect abolishing the old regime of covenanted annual payments and taking all charitable donations out of the ambit of sections 348 to 350 of ICTA. But, again, section 74(1)(m) was not specifically applied to gift aid payments. Further, section 74(1)(m) was not rewritten at all in ITTOIA, because it was considered to be without content.
This change restores the position in strict law to what has been established practice before and after the FA 1990 and FA 2000 changes. Double relief, under the rules for deductible expenditure and as a qualifying donation for gift aid, was never intended and has not been given in practice. It follows that, if a donation is allowable under any rule of deduction from income, it will not be a qualifying donation for gift aid purposes.