Sign reading "Donate" and "thank you" surrounded by Christmas decorations
Back to Basics: Gift Aid donations

At this time of year, television screens and social media feeds are filled not only with adverts for this year’s most sought after toys and gifts but also with appeals from charities seeking support during this season of goodwill. This month’s back to basics provides a timely reminder of the rules surrounding Gift Aid donations.

What is Gift Aid?

Gift Aid is a scheme that allows qualifying charities and community amateur sports clubs (CASCs) to claim an additional 25p in tax relief from the UK government for every £1 qualifying donation received at no extra cost to the donor.

How to make a Gift Aid donation

In order to apply Gift Aid, the individual donor must complete a Gift Aid declaration. This can be made in writing, verbally or online, including by email or text. The declaration can cover:

  • a one-off declaration (eg an annual telethon)
  • the current and all future donations
  • any donations made in the last four years or since the charity or CASC was registered, if later

Limits to Gift Aid

Donors must ensure that they have paid enough UK income tax or capital gains tax in the tax year to cover the top up claimed by the charities or CASCs. A simple check is to multiply the tax paid in the year by four and confirm that the total Gift Aid donations do not exceed this amount.

Other ‘taxes’ such as council tax do not count.

A donor should let a charity or CASC know if they no longer pay enough tax, so that the Gift Aid declaration can be cancelled.

If Gift Aid has already been claimed and the donor has not paid enough tax, HMRC will not recover this from the charity and may instead require the donor to pay the difference.

It’s important also to understand that not all donations qualify for Gift Aid. The following gifts are excluded from the scheme:

  • from limited companies
  • made through Payroll Giving (as these are deducted before tax)
  • that are a payment for goods or services or made because the charity or CASC bought goods and services
  • where the donor gets a ‘benefit’ over a certain limit
  • of shares
  • from charity cards or of vouchers, for example Charities Aid Foundation (CAF) vouchers
  • of membership fees to CASCs
  • donations received before the recipient was a recognised charity or CASC

Further tax relief for the donor

Higher or additional rate taxpayers can claim additional tax relief through their tax return if they complete one. Intermediate rate taxpayers in Scotland can also make a claim.

If they do not complete a tax return, they should contact HMRC and ask them to amend their PAYE code. For gross donations of £5,000 or less this can be done by phone or through the donor’s personal tax account if they have one. For gross donations over £5,000, the claim should be made in writing.

For example, if the donor is a higher rate taxpayer in England or Wales and makes a £100 donation to a charity, this equates to a gross donation of £125 (the amount of the donation plus the tax claimed by the charity or CASC). This extends the taxpayer’s basic rate tax band by £125 resulting in further relief of £25 (125 x (40%-20%)).

Why it matters

Gift Aid is a simple way to make charitable giving go further. Not only does it support good causes, but it can also provide valuable tax savings.

By promoting awareness, employers help employees make informed decisions that maximise the impact of their donations, benefiting both the charities and the donors.

So, giving to charity this season can bring not just a warm glow to your heart but also to your wallet!

 

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.  

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