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Is the Covenant dead? Of course not!
Is the covenant dead? Of course not. It remains an essential fundraising tool. The March 2000 Budget was rightly the cause of great rejoicing for the enormous liberalisation of the rules governing Gift Aid. Donations of any size became eligible for tax relief. Many pundits, including some in the Inland Revenue and the Charity Tax Reform Group proclaimed the covenant redundant, if not well and truly dead.
From time almost immemorial (well, over a hundred years) the tax relief available in charitable covenants has given the professional fundraiser one of the most effective tools for maximising donors' donations and increasing their personal commitment to the charity.
What is a covenant? It is a legal agreement by one party to do something - or indeed not to do something — for or to another party. In the past, covenants had to last for a minimum number of years. But why? Was it because the Inland Revenue in the bad old days didn't like giving tax back? The main intended effect was probably to persuade people to give regularly to charities, and to treat their giving seriously — seriously enough to commit to seven years and, more recently, four years. In this respect it was extremely effective. Now that the Inland Revenue responds very speedily to tax claims, through Gift Aid, the need for the minimum number of years for covenants has been removed. This is huge cause for celebration but does not make the covenant redundant.
For anyone involved in capital project fundraising the covenant remains a vitally important tool. Donors can usually give substantially more if they are able to spread their donations over a longer period. Furthermore, this cements them to the charity and its work, and makes them much more committed to it.
For a charity which needs to borrow from the bank, in order to part-fund a project, covenants have established a track record of sound security understood by all good charity bankers. A bank is unlikely to have the same confidence in a simple Gift Aid banker's order which puts no legal obligation on the donor — this gives no basis for borrowing. While it would be a very rare charity that pursued a defaulting covenanter through the courts, the banks know that very few do default. A banker's reaction to a raft of banker's orders for Gift Aid would be very different.
A covenant can say anything — it is an agreement between charity and donor for a certain amount to be given over a certain period. Covenants made out after 5th April 2000 must include a Gift Aid Declaration to enable charities to reclaim tax.
It is amazing how everybody, from the Charities' Tax Reform Group — which appears to have no interest whatsoever in covenants — to the Inland Revenue itself, did their best to destroy one of the most useful and effective fundraising tools around. They maybe just hoped it would go away, but I, for one, won't let it. I have just produced my first covenant form covering two years or more, (the minimum of four years no longer applies) which of course contains the Gift Aid Declaration, and we got the first one back in the school where we’re working within three hours of the form coming off my printer. And guess what? It was made out for seven years! It just goes to show you can't kill old habits, however hard you try.
The covenant is well and truly alive, and set to serve another generation of fundraisers and donors alike. Long may it stay that way!
By Andrew de Mille (published in Third Sector, September 2000) — senior partner of Andrew de Mille Fundraising Consultants.