Charity Donations

Giving to Charity using Gift Aid

Gift Aid is used by many people as a tax efficient method of giving to charities, but sometimes the implications aren't properly understood.

Gift Aid can apply to any type of cash donation, large or small, regular or one-off.

By confirming that they are taxpayers, donors can ensure that charities are able to reclaim the basic rate of income tax on all their donations, equal to 20% of the amount donated.

This confirmation has only to be completed once for each charity and remains valid for as long as the donor remains a taxpayer.

Additionally higher rate taxpayers can claim an enhanced personal allowance to take into account the donation made.  

Implications for Non Tax Payers

The area that often catches out clients is that Gift Aid donations can have unintended consequences in some circumstances.

For example if you run a business and have been completing self assessment tax returns for many years, and paying tax, you will have been entering Gift Aid donations onto your tax return without any adjustment being made to the tax you owe.

However, should your business suffer a drop in profits so that you have no tax liability in a particular year, but you do have Gift Aid donations in the year, you will then be required to pay over to HMRC the equivalent amount to the tax that is going to be reclaimed by the charity.

This is often overlooked by clients, and means that you may be making a larger donation than you initially expected. 

Gift Aid Small Donations Scheme

Charities and Community Amateur Sports Clubs (CASCs) may be able to claim top‑up payments from HMRC on small cash donations made under the Gift Aid Small Donations Scheme (GASDS).

For the purposes of the scheme, a small donation is £20 or less.

Using GASDS a charity can recover tax although no Gift Aid declaration has been made.

The scheme only applies to donations made in cash, so is very relevant for charities who use collection boxes or bucket collections to raise funds. Cheques or bank transfers are not eligible under GASDS.

To qualify for GASDS, the charity must:

  • Be a charitable trust or a charitable company, recognised by HMRC as a charity for tax purposes or a CASC
  • Make claims under Gift Aid
  • Have existed for at least the previous two complete tax years (6 April ‑ 5 April)
  • Have made a successful Gift Aid claim in at least two out of the previous four tax years, without a gap of two or more tax years between those Gift Aid claims or since the last claim was made
  • Not have incurred a penalty on a Gift Aid or GASDS claim made in the current or previous tax year.

Next Steps

If you require further information about charity donations and the tax implications please contact us.

 

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