EXPLANATORY NOTE

1. This clause introduces an amendment to the Millennium Gift Aid scheme. It provides that where donations are being made by instalments, the tax that the charities can reclaim from the Inland Revenue is calculated at the basic rate of tax for the year in which the first instalment is paid. At present charities have to reclaim basic rate tax at the rate applicable to the year in which the last instalment is paid. This amendment ensures that donors and charities will know from the outset at what rate tax relief will be available. The provision will take effect retrospectively from 31 July 1998, the date that the Millennium Gift Aid scheme originally began.

_________________________

2. Subsection 1 provides that section 48 Finance Act 1988, which sets out the conditions for the Millennium Gift Aid scheme, will be deemed always to have included the following amendments.

3. Subsection 2 amends section 48(4), which deals with the aggregation of instalments payments, by making it subject to new subsection (4A.).

4. Subsection 3 inserts that new subsection (4A) after section 48(4). This provides that where instalments are paid in different years of assessment, section 25(10) Finance Act 1990 (receipt of donation by charity treated as after deduction of basic rate tax) shall apply as if the aggregated donation had been made in the year of assessment in which the first of the instalments was paid. This will mean that the rate of tax that charities can reclaim will be calculated at the basic rate for the year in which the first instalment is paid.

_________________________________

5. The Millennium Gift Aid (MGA) scheme, which was introduced on 31 July 1998, is a special form of Gift Aid for donations to UK charities working on education and anti-poverty projects in the world’s 80 poorest countries. Unlike ordinary Gift Aid, where the minimum donation is £250 and must be made in one payment, the minimum donation for MGA is £100 and can be made by instalments. MGA is a time-limited relief and donations must be made by 31 December 2000.

6. As with Gift Aid, the donation is treated as made net of basic rate tax, which the charity can reclaim from the Inland Revenue. Under the existing legislation, where an MGA donation is made by instalments the aggregated donation is treated as made at the time of the last of the instalment payments and it is the basic rate of tax prevailing at that date which the charity can reclaim from the Inland Revenue.

7. In the Budget the Chancellor announced that with effect from 6 April 2000 the basic rate of income tax will decrease from 23 per cent to 22 per cent. As many MGA donors will be paying instalments that straddle two, or even three, years of assessment which may have different rates of tax, this provision is being introduced to provide certainty at the outset for both donors and charities that the rate of tax that charities will be able to reclaim from the Inland Revenue is the basic rate prevailing when the first of the aggregated instalments is paid.

8. MGA is being promoted by a paid publicity campaign - Gift Aid 2000 - which will raise awareness of the tax relief and encourage taxpayers to use the relief.

9. The change will take place against the background of the Review of Charity Taxation which began work in July 1997, and has been examining all aspects of the tax treatment of charities, including direct tax and VAT. A consultation document was published on Budget Day setting out options for change on various issues, including a proposal to extend the advantages of MGA to all charities after 31 December 2000. Charities and other interested parties have until 31 August 1999 to respond on the options.