The public policy think tank ResPublica has called for a “radical” overhaul of the Gift Aid system to bring it up to speed with the digital age.

The think tank said the system was “antiquated” and “bureaucratic” and that it was “an anomaly in this day and age” that charities are still unable to claim Gift Aid online.

A new report released by the think tank on Gift Aid’s 20th anniversary yesterday warned that charities were losing out on as much as £750 million each year because of the current paper-based system.

It claims that the current Gift Aid system places unnecessary burdens on HMRC and individual charities and is so inefficient that the cost to the taxpayer of processing each claim amounts to around £5.

The think tank said that the high administrative costs had created a “perverse disincentive” for the Treasury to encourage more people to use Gift Aid on their donations.

It wants the current system to be digitalised to make it easier for charities to claim Gift Aid, including Gift Aid relief on donations made by text.

While report co-author Asheem Singh said Gift Aid was still a “unique and invaluable system” for boosting the income of charities, he warned that it could not continue to operate in the same manner as when it was first launched in 1990.

“By linking the relief to a donor’s income tax and donation, Gift Aid takes the power of disbursing funds – funds that would otherwise be appropriated by Whitehall – out of the hands of government, grant makers, and the sphere of lobbyists’ influence, and places it in the hands of the donor,” he said.

“But in many ways it remains stuck in its past, operating in much the same way as it always has.”

According to a recent survey of small charities cited in the report, 22.3 per cent of respondents complained at the length of time it took to complete the paper work, while 10 per cent said they felt their charity had even lost money because of the complexity of the Gift Aid system.

The report calls upon the Government to allow charities to file their Gift Aid claims online instead of by paper and post, arguing that it would save taxpayers and charities money, and challenge HMRC to “overcome its inertia” towards Gift Aid.

“An online system for filing Gift Aid claims would not only offer savings to charities; it would moreover reduce the £5 HMRC currently spends on processing each Gift Aid claim they receive, and enable HMRC's accounting to be more accurate,” the report states.

“Everybody benefits from the right online system and this must be the first item for reform. Without this reform, other measures will fail to prevent the relief increasingly being consigned to irrelevancy.”

The think tank added that moving online would enable charities to apply Gift Aid to a range of other digital payments, such as text message donations.

It said that enabling Gift Aid on text donations could be worth as much as £15.4 million to charities by 2014.

The 92-page report was commissioned by the Charities Aid Foundation to coincide with the 20th anniversary of the Gift Aid scheme.

Mr Singh urged the Government to help charities get the most out of Gift Aid as many of them continue to struggle in the tough economic climate.

“Thirty two per cent of charities have no cash reserves to help them survive any cuts in funding, against a backdrop of £3 billion cuts to various government programmes targeting the voluntary sector,” he said.

“The maximum value must be squeezed out of every pound that passes through the Gift Aid system by both Government and charities.”

He continued: “Nearly 20 per cent of charities are unable to find funding for additional services, 16 per cent are struggling to cope with the effects of recession.

“This is why they need to think innovatively, to develop the ways that enable us to give to their good causes and Government needs to modernise its systems so as to maximise the relief available to the taxpayer and the incentive to give.”

ResPublica director Phillip Blond said an overhaul of the system would help tap into a new generation of donors who give in response to appeals put out across social media websites like Twitter, Facebook and Bebo.

“Gift aid is vital to so many charities and reform is years overdue. We have in our latest report set out a series of recommendations, which if adopted will boost giving and slash costly red tape associated with the current Gift Aid system,” he said.

“If Gift Aid is to work, then it must be simple to administer and cost effective. At the moment it is not and consequently charities are losing out on hundreds of millions of pounds.”