1. This Clause ends the separate regime of tax relief for donations to charity by individuals and companies under a Deed of Covenant. Such payments will in future come within the Gift Aid scheme.

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2. Subsection (1) substitutes the words "a qualifying donation" for the words "a covenanted donation to charity" in subsection (5)(b) of section 338, Income and Corporation Taxes Act 1988.

3. Subsection (2) provides that subsections (2)(b), (7) and (8) of section 347A, Income and Corporation Taxes Act 1988 shall cease to have effect. That removes the references to covenanted payments from Section 347A, which relates to annual payments.

4. Subsection (3) inserts, at the end of Section 348(3), Income and Corporation Taxes Act 1988 the words "or to any payment which is a qualifying donation for the purposes of section 25 of the Finance Act 1990". That removes the entitlement for certain individuals to deduct tax from covenanted payments, which will in future come within the Gift Aid scheme.

5. Subsection (4) inserts, at the end of Section 349(1), Income and Corporation Taxes Act 1988, the words "or to any payment which is a qualifying donation (within the meaning of section 339) or a qualifying donation for the purposes of section 25 of the Finance Act 1990". That removes the requirement for companies and certain individuals to deduct tax from covenanted payments, which will in future come within the Gift Aid scheme.

6. Subsection (5) deletes from section 505(6), Income and Corporation Taxes Act 1988, the words "and, for this purpose, all covenanted payments to charity (within the meaning of section 347A(7)) shall be treated as a single item".

7. Subsection (6) substitutes a new paragraph (b) in subsection (9) of Section 660A, Income and Corporation Taxes Act 1988. That substitutes a reference to Gift Aid donations for the existing reference to covenanted payments to charity.

8. Subsection (7) repeals Section 59, Finance Act 1989, which dealt with covenanted payments. The effect of Section 59 is replicated for Gift Aid donations by the new subsections (5E) to (5G) of Section 25.

9. Subsection (8) provides that, where a deed of covenant executed by an individual before 6 April 2000 provides for payment of a specified amount, the amount payable after that date shall be the specified amount less the basic rate of income tax, notwithstanding the removal of the entitlement/requirement to deduct tax from covenanted payments.

10. Subsection (9) brings the section into effect for covenanted payments falling to be made on or after 6 April 2000 by individuals and for covenanted payments made on or after 1 April 2000 by companies.

11. Under the Deed of Covenant scheme, donors enter into a legally enforceable commitment to make regular donations to a charity for a period exceeding three years. There is no minimum or maximum limit for donations. The amount paid by the donor is treated as a ‘net’ amount after deduction of basic rate income tax, which the charity can claim back from the Inland Revenue. Deeds normally contain words to the effect that the donor shall pay "such an amount as after deduction of tax equal £x". So, the amount paid by a covenantor does not change with changes in the basic rate of income tax. However, some covenants provide for payment of a fixed gross amount, so that the net payment varies with changes to the basic rate. Donors who pay income tax at the higher rate can claim higher rate tax relief in their tax return (at the difference between the higher rate and the basic rate). Donors who pay income tax at a rate below the basic rate, or who pay no income tax at all, must pay basic rate income tax in respect of their donation so that, overall, the correct amount of tax relief is given.

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