Charities are missing out on income worth £560 million as a result of people failing to add Gift Aid to donations, new government research has revealed.

A new report, Charitable Giving and Gift Aid, published by HRMC today, has revealed 25 per cent of donations made to charity between 2016 and 2017 did not have Gift Aid added to them, contributing to almost £600m in missed income.

The report also found 8 per cent of the value of donations made in the 12 months prior to the survey had Gift Aid incorrectly added to them by ineligible donors – generating a Gift Aid tax gap of some £180 million.

HMRC said the main issue causing errors with Gift Aid was the misunderstanding of what Gift Aid actually is, what it means to be a tax payer and how to qualify someone eligible to add Gift Aid.

The second key issue affecting the Gift Aid system was the lack of a consistent opportunity to add Gift Aid to donations.

The government said there is an opportunity to reduce Gift Aid claims among ineligible donors and increase eligible donors by “improving knowledge”. It said more information about Gift Aid eligibility criteria and about the benefits of Gift Aid could increase the likelihood of “correct” Gift Aid.

“Providing this information on websites which offer the option to add Gift Aid to donations (e.g. online sponsorship or charity websites) is important in reducing risk of incorrect behaviour caused by misunderstanding of eligibility,” the report said.

“There is a particular need for this information to be provided in relation to direct debits, which generated the highest value of donations, among eligible and ineligible donors alike, and contributed the largest proportion to the value of unclaimed Gift Aid and the Gift Aid tax gap.”

Today’s report was based on research from consultancy firm Quadrangle, who surveyed 1,377 people between late 2016 and 2017.

The research also found estimated donations to charity are worth some £8.9bn, and 95 per cent of those surveyed had donated to charity in the 12 months prior to the survey.

It also found 78 per cent of people had given money in cash (through collection tins and buckets), amounting to a total of £620m for charity. However, 40 per cent of people had given through direct debits, amounting to a staggering £3.61bn.

The government’s research highlighted that there was generally a higher chance of people adding Gift Aid to their donations when giving online, rather than by other methods.

“Gift Aid is an important source of income for charities through the provision of tax relief on charitable donations made by individuals in the UK. The scheme, while highly beneficial for the charitable sector, is not without its challenges,” the report added.

“It is critical that improvements are co-ordinated, with increased knowledge accompanying (or preceding) widening opportunities so as to avoid unintended consequences.”

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