‘Gift Aid’ is a term that most of us will be familiar with. From the sponsorship form handed round the office, entries to stately homes, to donating old clothes to a charity shop, we are often asked if we want to tick the Gift Aid box. This donation supersizer allows you to add up to 25% to the value of your donation without spending an extra penny. So, what is Gift Aid?
Charities are exempt from paying tax on most types of income, but the donations they receive are almost always made from income which has already been taxed (like your salary). The charity has therefore indirectly suffered tax on the money it has received. By adding Gift Aid to your donation, you are enabling the charity to reclaim this tax, thereby increasing the overall donation.
Here are 4 key points to be aware of when you come across Gift Aid:
There are lots of different things you can claim Gift Aid on
Gift Aid can be claimed on a wide range of donations. Membership subscriptions to bodies like National Trust, and entries to attractions including stately homes can often include a Gift Aid donation. Donating items to charity commonly comes with a Gift Aid form. Of course, there are then the direct financial donations made to charities via sponsorship and regular donations.
But some things you should not claim Gift Relief on
Donating money in return for tickets (such as in a raffle or an auction), or for goods and services do not qualify for Gift Aid.
You cannot claim Gift Aid on a donation made on behalf of someone else, a group of people, or a company. This is because HMRC needs to look at the tax position of the person actually making the donation.
You need to make sure you have paid enough tax to avoid a further bill
As the charity is reclaiming tax from HMRC, you need to make sure that you have paid enough tax yourself to cover what is being reclaimed. HMRC are not in the business of giving money away and if they discover that more tax is being reclaimed than has been paid, you are required to foot the differene.
For this purpose UK income tax and capital gains tax will count towards your total. Sadly, VAT and council tax do not.
Donations extend your tax bands
Giving to charity is good for your tax bill! Making a donation to charity will extend the amount of your basic rate and higher rate income tax bands. This means that more of your income will be taxed at a lower rate.
If you have any questions about the tax benefits of Gift Aid or any other matter relating to your tax affairs, then please contact Anna Casey-Woodward on 01865 255637.