Gift Aid allows charities and community amateur sports clubs (CASCs) to increase the value of donations made to them by enabling them to reclaim basic rate tax on the donation, as long as the donor signs a gift aid declaration confirming that he or she is a UK taxpayer. The donation is made net of basic rate tax.
What you need to do
You need to make a Gift Aid declaration for the charity to claim. You usually do this by filling in a form – contact the charity if you haven’t got one.
You must give a declaration to each charity you want to donate to through Gift Aid.
You can include all donations from the last 4 years having paid tax on income or capital gains in those years.
However, if you’re a higher or additional rate taxpayer, you are able to claim relief for the difference between the higher or additional rate, as appropriate, and the basic rate through your self-assessment tax return.
Special rules for claiming Gift Aid
- Funds raised from sponsored challenges eg overseas treks or running marathons
- Membership fees of a charity or CASC
- Charity events or to donations made to view charity property
- If you receive volunteer expenses and donate them back to your charity or CASC
- Donations to charity auctions
Gift Aid Tax Trap
Many people make regular donations to charity and sign a gift aid declaration covering all gifts to the charity. This is fine as long as you the donor remains a taxpayer, but could cause problems if your income falls, or if you cease to pay tax as a result of an increase in the personal allowance.
Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year.
The tax repaid to a charity on a gift aid donation is funded by the tax paid by you the donor, so you must tell the charities you support if you stop paying enough tax. If tax is reclaimed by a charity and you have not paid sufficient tax to cover the sum reclaimed, HMRC may well take steps to recover the tax from you the donor.
It is therefore very important that if your income is modest or falls because of say, retirement then you should review gift aid declarations and cancel them if it appears that you’re unlikely to pay sufficient tax to warrant the declaration.
Gift Aid Tax Example:
For many years, Pauline has given £10 a month to a particular charity. She has signed a gift aid declaration covering all future donations. Until 30 April 2015 she was employed on a salary of £30,000 a year. She retires on 1 May 2015. Her income for 2015/16 is less than £10,000, which is covered by her personal allowance. Consequently she pays no tax in 2015/16.
Pauline will need to cancel her gift aid declaration and not gift aid any further donations that she may make in 2015/16 to ensure that HMRC do not try and recover any tax reclaimed by the charity from her.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.