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Digital Markets, Competition and Consumers Bill: Will new consumer protection rules restrict access to Gift Aid?

There has been deep concern among membership charities in recent weeks about the Digital Markets, Competition and Consumers Bill (the Digital Markets Bill), which had its second reading in the House of Lords on 5 December.

 Charity membership subscriptions are an important source of income for many charities and, for some, are critical to their operating model. It has come to the sector's attention, however, that the current drafting of Digital Markets Bill could severely restrict charities' ability to claim Gift Aid on certain membership subscriptions, with damaging effects on their revenues. 

Gift Aid is a tax relief that allows charities to claim an extra 25p on every £1 they are given. It is a significant source of revenue for the sector: in the last tax year, HMRC paid out £1.6 billion in Gift Aid. The rules around the relief are complex, and HRMC provides extensive guidance to explain which payments to charities are eligible for Gift Aid and which are not.  A key condition of the relief is that charities can only claim Gift Aid on donations, rather than on contractual payments. For a payment to be considered a donation, it must be non-refundable.

The Gift Aid rules also control the extent to which charities can claim Gift Aid on the subscriptions paid by their members. To be eligible for Gift Aid, a charity membership subscription must only be a payment for membership of the charity; it must not give the member a right to personal use of the charity's facilities and services. There are, however, certain carve outs that allow charities to offer token benefits to their members, without losing the right to treat their subscriptions as donations. For example, charities can send their members newsletters about their work or give them the right to visit the charity's property for free. While charities therefore have to be careful about their membership offerings, they can raise a considerable amount from these subscriptions. For example, £276 million of the National Trust's revenues last year (40%) came from its memberships, of which £47 million related to Gift Aid. 

This is where the Digital Markets Bill has the potential to be problematic for charities that offer benefits to their members. New rules proposed by the Bill are intended to protect consumers who are signed up to subscription contracts that auto-renew, making it easier for them to cancel these contracts and to be refunded. While these changes may be beneficial for consumers, there is concern in the charities sector that the current drafting of the Bill might have the unintended effect of stripping some charities of their right to claim Gift Aid on their membership subscriptions.

The Digital Market Bill's definition of ‘subscription contract’ could capture many charity membership subscriptions. If this is the case, then the charities affected will be obliged to offer their members the right to cancel their membership and claim a refund. However, Gift Aid can only be claimed on non-refundable donations. As a result, the Bill could have the effect of converting charity membership subscriptions into commercial payments that are ineligible for Gift Aid. The loss of these Gift Aid revenues would be a disaster for many membership charities. 

How this issue should be addressed needs careful thought. The Government might decide that charity membership subscriptions should be caught by the Digital Markets Bill, but then try to find a way to preserve charities' ability to claim Gift Aid on these subscriptions - perhaps taking the opportunity to clarify how the Gift Aid rules interact with existing consumer protection rules at the same time. There is, however, a significant risk that new rules could complicate an already complex area, and force charities to take on an additional bureaucratic load. 

A simpler alternative would be to add charity membership subscriptions to an existing Schedule in the Bill that sets out a range of contracts that are expressly excluded from the definition of ‘subscription contract’. This is already wide ranging, capturing, for example, contracts relating to utilities, childcare, food deliveries, OFCOM regulated contracts, and even gambling contracts (on the grounds that these are already regulated and the National Lottery has charitable ends). 

Charities have strong arguments for their membership contracts to be included in this Schedule. The charities sector is already monitored by regulators such as the Charity Commission for England and Wales, the Fundraising Regulator and DCMS. The money raised by charity membership subscriptions must already be used in furtherance of charitable purposes for the public benefit. If the right to claim Gift Aid on these membership subscriptions is not protected, then the charities affected would likely suffer financial shocks that would force them (at the very least) to substantially cut back on their charitable activities. Given the scale of the activities carried out by these charities, the impacts of this would be far reaching. 

How the problem will be therefore addressed remains to be seen. What is promising, however, is that during its last reading, the Parliamentary Undersecretary of State offered reassurances the Bill was not intended to undermine access to Gift Aid and that the issue was being examined closely. The Bill is now due to be considered at the Committee stage and it will be interesting to see what changes to the drafting are proposed. 

"A number of noble Lords—I hope noble Lords will forgive me if I do not read out the full list, because there are far too many of them and it might test everyone’s patience—raised concerns about potential unintended consequences for charities in relation to the new subscription rules, in particular their ability to claim gift aid..."

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