The government's proposed scheme for charities to claim a gift aid-style payment on small cash donations "could unlock around £100 million a year for the sector", a Treasury minister has said.
Chloe Smith, economic secretary to the Treasury, told MPs in the Commons the aim of the plan was to "complement gift aid and not replace it".
Speaking during the second reading debate on the Small Charitable Donations Bill on Tuesday, Ms Smith said the proposed legislation would introduce the Gift Aid Small Donations Scheme (GASDS) which was announced in the Budget in 2011.
She said: "The purpose of this scheme is to enable charities and CASCs (Community Amateur Sports Clubs) to claim a gift aid-style payment on small cash donations up to £20 in the cases where it is often difficult to obtain a gift aid declaration. In general terms, eligible charities and CASCs will be able to claim top-up payments on up to £5,000 of small donations each year."
She added: "This Bill provides for top-up payments to be made to eligible charities who find it difficult to claim that gift aid on donations like street buckets or church plates and the point is it's where donors may be reluctant to stop and fill in gift aid declarations. In these situations charities are currently missing out on potential income."
Ms Smith told MPs the new scheme did not require individual donors to complete a gift aid declaration or for the charity or CASC to collect and provide the donor's details with their repayment claim as is required under gift aid.
The key "driving principles" behind the scheme, she argued, were "fairness, protection against fraud and providing a complementary scheme to gift aid, all whilst channelling some extra funding to charities".
The scheme, she told MPs, represented the potential for a "significant new income stream for charities and for CASCs" which would be "particularly valuable to the sector during difficult economic times".
She said: "Charities will be able to claim these new payments on those small donations, where to date it's been difficult or impossible to claim the necessary paperwork for gift aid to apply. This could unlock around £100 million a year for the sector as a whole once it is up and running."
Shadow economic secretary Cathy Jamieson believed the plan would boost the gift aid scheme and said "every additional penny, every additional pound that can be added to the funds charities have raised themselves will be very welcome and put to very good use".
She added: "It will be of particular benefit to small charities. We know that millions of pounds in potential gift aid is left unclaimed every year.
"This scheme will go some way to bringing some of this money back to the beneficiaries that need it most."
She said the most common type of donations were small cash gifts on the streets, with the average giver placing £11 in charity tins and buckets in a year.
But she warned against making the new regime too complicated, telling MPs: "Charities are asking the government to substantially simplify the scheme, to allow for improved access for smaller organisations, to make the scheme fairer and to allow equal access for similar charities.
"The abiding principle they want to see adopted is that it should be easier to access and not be tied up in red tape."
She added: "Many small charities won't necessarily be registered with HM Revenue and Customs (HMRC) and unless they do so they will not be eligible to join the scheme."
She feared some charities, particularly those with few staff, "may just decide it's too complex and rule themselves out".