When donating to charity or sponsoring someone, should you tick the Gift Aid declaration box? How much of a difference does it actually make to your donation? And if you do but you’re not eligible to donate, what are the consequences? We take a look into what Gift Aid is and exactly how it works.
What is Gift Aid?
Gift Aid was set up by the UK government in 1990 to allow charities and community amateur sports clubs (CASC) to reclaim tax that’s already been paid on monetary donations they receive.
This means, for everyone £1 donated by a UK taxpayer, organisations can reclaim 25p: basic rate tax. Although this might not seem a lot – a £5 donation will become £6.25 – when you add up everyone’s contributions it makes a huge difference. Since it began, it has generated more than £60 billion for good causes; in the 2015/16 tax year, charities benefited from £1.27 billion in Gift Aid alone.
Who can make Gift Aid donations?
As long as you’re a UK taxpayer – which means you pay income tax or capital gains tax (other types, such as council tax, don’t count) – you’re eligible to tick the Gift Aid declaration box.
The important thing is to make sure you don’t donate more in Gift Aid than the amount of income tax or capital gains tax you’ve paid in that tax year. If you do, you may be contacted by HMRC and asked to pay the outstanding amount.
When you do your calculations, remember to allow for the tax free threshold and any pension plans or other forms of tax relief.
How can you make a Gift Aid donation?
As long as the organisation is registered as a charity or CASC, they can claim your Gift Aid donation at no cost to you.
All you need to do is tick the declaration box and supply your first initial, surname, first line of your address and postcode - so HMRC can make sure it’s a valid donation. You may also be asked to indicate whether this is a one-off or ongoing donation. All this can be done online, verbally (for example, over the phone), or in person (for example, fundraising events or church collection envelopes). For verbal donations, the organisation will send you a form to fill in to make it official.
It’s worth knowing that some charity shops also operate a retail Gift Aid scheme. The government's Gov.UK website outlines it in more detail but, in brief, when you give items to a charity shop you can enter into an agreement whereby they act as ‘agents’ to sell them for you. You then offer to donate all sales proceeds to the shop and they can claim Gift Aid on this amount.
When can’t you make a Gift Aid donation?
Gift Aid donations can only be made on donations of your own money.
This means you can’t do it with money resulting from a sale, even a charitable sale such as raffle tickets; you can’t donate a collection from multiple people – everyone would need to make individual donations and add Gift Aid that way; you can’t donate on behalf of someone else or a company; and you can’t do it if you receive something in return – such as buying cupcakes at a fundraiser.
Higher rate taxpayers
In their annual tax returns, higher rate taxpayers are able to claim back additional tax relief on the difference between the tax they pay and the basic tax rate on their donation: the Gift Aid donation will still be calculated at the basic rate.
As Payroll Giving donations are taken before tax, they aren’t eligible for Gift Aid donations.
If you’re donating to a charity or CASC – either directly or through a sponsored event – adding Gift Aid to your donation can make a big difference to the amount they’ll receive. Just make sure you’re a UK taxpayer and you’ve paid enough tax to cover your donations: it’s a simple and effective way we can all help make the world a better place.