Many of us regularly give to charity but do you tick the box to gift aid? If you do – well done you! If you don’t then both you and the charity are missing out.
What is Gift Aid?
Claiming Gift Aid is an added benefit for you and the charity.
Gift Aid is an Income Tax relief designed to benefit charities and Community Amateur Sports Clubs (CASCs).Unless otherwise indicated in this guide, the term "charity" includes a CASC.
Under Gift Aid, a charity may claim a tax refund when it receives a donation payment from a tax payer who is an individual.
The individual donor must have paid sufficient Income Tax or Capital Gains Tax in order to cover the grossed up amount of the donation made otherwise they will have to repay HMRC for the tax refunded to the charity.
The relief is set out in Chapter 2 Part 8 ITA 2007.
Gift Aid relief does not apply to donations made by companies.
How Gift Aid works - Tax relief for the charity
A donation made under Gift Aid is treated as if it has been received by the charity net of basic rate tax. The charity is then able to reclaim the basic rate tax credit.
For example: If an individual taxpayer makes a donation of £100, the charity can reclaim an additional £25 (£100 x 20/80)
How Gift Aid works - Tax relief for the donor
A donor who is a basic rate taxpayer will receive no further tax relief as a result of making a donation.
A donor who is a higher and/or additional rate taxpayer will be able to claim tax relief on the difference between the higher/additional rate tax and basic rate on the grossed up donation.
For example: An individual taxpayer makes a donation of £100, the charity can reclaim an additional £25, giving a grossed-up donation of £125.
Where the taxpayer is a 40% taxpayer, £25 (40%-20% x £125) can be reclaimed, giving a net donation cost of £75.
Where the taxpayer is a 45% taxpayer, £31.50 (45%-20% x £125) can be reclaimed giving a net donation of £68.50.
If you are a higher rate tax payer start recording the gift aid donations you receive. When it comes to the end or the tax year you can then make a claim to HMRC for your additional tax relief either directly or through your self assessment tax return.
They may only be small amounts but we all know pennies add up ….