How will devolving income tax affect Gift Aid?

Devolving income tax massively impacts on Gift Aid. This is because Gift Aid is a relief on income tax. When someone donates to charity, the income tax that they had paid through their income to the UK Government can be claimed by the charity from the UK Government at the basic tax rate of 20%. If income tax is devolved but Gift Aid stays the same then the game changes. Assuming that the Gift Aid rate stays at 20% across the whole of the UK, but that the basic rate of income tax in Scotland changes, Gift Aid on behalf of Scottish donors would no longer be connected to the basic rate of tax. Instead, it would become the UK Government's 'gift', unlinked to the tax that the individual donor has paid and gifted to charity through his or her signing of a Gift Aid declaration. This could leave it open to changes, including reductions, by the UK Government. Furthermore, Smith did not offer all of income tax for devolution. Income taxes on savings, pensions, and capital gains are to remain at the UK level and so will the new 'UK Social Investment Tax Relief'. This could create massive complexity for Gift Aid arrangements as donors themselves might need to track how much tax they are paying to Revenue Scotland versus HMRC in order to keep within the law. This is so complicated that it could eventually lead to HMRC seeking any mistaken overpayments directly from charities rather than individuals. The administrative burden this could add to charities would be disastrous for many good causes. Also worth considering is that many UK-wide charities don't want to rock the boat. The UK Government has made a number of concessions in recent years and is increasingly supportive through its Gift Aid scheme and some selected VAT rebate provisions. In the Autumn Statement the Chancellor announced some give-aways to charities, particularly VAT rebates for air ambulances, search and rescue services and for hospices. There's a lot of money at stake here. VAT for charities costs them £1bn per year across the UK. Smith proposed that Scotland should get 50% of the money generated by VAT in Scotland, which could create possibilities for Scottish tax authorities to fund VAT rebate schemes for charities. The wizards of the tax world tell me there is a mysterious clause in the VAT Act called 'section 33' that could be partially devolved for this purpose. Understandably, this is a big issue for large cross-border charities and I am aware that a number of them are worried about fragmenting charity tax support across the UK. SCVO is working very closely on this agenda with the UK Charity Tax Group, UK HMRC, Treasury, Revenue Scotland and OSCR, and we will be working hard to address these dilemmas.