Gift Aid

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Gift Aid is a scheme to enable tax-effective giving by individuals to charities ... The Gift Aid scheme was originally introduced in Finance Act 1990 for donation ...
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Gift Aid is a scheme to enable tax-effective giving by individuals to charitable organization in the United Kingdom. The Gift Aid scheme was originally introduced in Finance Act 1990 for donation from 1 October 1990, but was originally limited to cash gifts of £600 or more. The scheme was substantially revised from 6 April 2000, when the minimum donation limit was abolished. A similar scheme applies to charitable donations by company that are subject to UK corporation tax.

The details of the scheme are complicated, and this article only gives an outline of its basic feature.

Gift Aid allows individuals who are subject to UK income tax, to complete a simple, short declaration that they are a UK taxpayer. Any cash donations that the taxpayer makes to the charity after making a declaration are treated as being made after deduction of income tax at the basic rate (22% in 2006/7), and the charity can reclaim the basic rate income tax paid on the gift from HMRC. For a basic-rate taxpayer, this adds approximately 28% to the value of any gift made under Gift Aid. Higher-rate taxpayers can claim income tax relief, above and beyond the amount claimed directly by the charities. The rate of the relief for higher-rate taxpayers in 2006/7 is usually 18%, the difference between the basic rate (22%) and the higher rate (40%) of income tax, although recipients of savings income (taxed at 20% and 40%) and dividend income (taxed at 10% and 32.5%) can achieve higher rates of tax relief (20% and 22.5%, respectively).

Originally, declarations had to be made in writing. Declarations can now be made verbally, but the charity must confirm the declaration in writing and keep a copy of the confirmation. If the taxpayer incorrectly makes a declaration, the charity is still able reclaim the tax that should have been paid on the gift, but the individual is required to pay the same amount to HMRC to make up the difference.

Gift Aid on Donated goods Gift Aid was originally intended for cash donations only. Since 2006 however, HMRC rules have been changed to allow tax on the income earned by charity shops acting as agent for the donor to be reclaimed, although to operate effectively, the charity needs HMRC-approved systems to be able to record and track the progress of each item from receipt to sale, and confirm with the donor that the donation should still go ahead. HMRC GA on Donated Goods

A practical example

Mr X donates £100 to charity.

Mr X is a higher-rate taxpayer, paying 40% income tax on part of his income. He has made a Gift Aid declaration to the charity. As a result:

the £100.00 gift is treated as being made after deduction of basic rate tax at 22%. The grossing up value of the gift before tax is £128.21 (£100.00 × 100/78), - this is the amount of money you would need to earn to receive £100.00 after tax.
the charity can claim the £28.21 of basic rate tax (£100.00 × 22/78) that the taxpayer is treated as having paid on the gift, effectively an extra 28% on top of the value of the £100.00 donation.
as a higher-rate taxpayer, Mr X can also claim back 18% of the gross value of the gift, £23.08 (£100.00 × 18/78), when he makes his tax return.

The benefits to the charity {|| || £100 || donation|-| || £28.21 || refund from HMRC|-! Total to charity = !! £128.21 !!|}

The cost to the donor {|| || £100 || donation|-| align=right| less || £23.08 ||refund from HMRC in due course|-! Total cost to Mr X = !! £76.92 !!|}

Revenue to HMRC Not all monies paid to HMRC during this transaction are refunded, so when giving to a charity there is generally also a donation to HM Treasury.

Any National Insurance contributions paid by the employer and employee are not refunded.
Not all taxes paid by the higher-rate taxpayer are refunded. For people without savings and dividend income, this equals 15.37% of the cash donation as the following example illustrates:

{||width="115"| ||align=right|£166.66||gross income before taxes|-|align=right|less||align=right|£100.00 ||paid to charity|-|align=right|equals||align=right|£66.66||higher rate (40%) imposed on giver|-|align=right|less||align=right|£28.21||the refund from HMRC to the charity|-|align=right|less||align=right|£23.08||the refund from HMRC to the giver|-| ||align=right|£15.37||difference kept by HMRC|}

If the charity does not reclaim the tax this money stays with The Treasury.
If the giver does not submit a self-assessment or forget to fill in the appropriate information on the self-assessment, the refund to the giver stays with The Treasury.

References

James Kessler QC & Setu Kamal, Taxation of Charities, 6th edition 2007, Key Haven Publications

External links

Gift Aid an overview...
Charities Manual:Gift Aid ...and more detailed guidance notes from HMRC

These sources give the Revenue's view, which is important but should not necessarily be taken as correct on all points.

The Institute of Fundraising maintains a separate microsite - Effective Giving - with information and resources for Gift Aid and other means of Tax-Effective Giving.
The Giving Campaign — promoting all forms of tax-effective giving.

Justgiving - about Gift Aid
Justgiving - the easiest way to fundraise and donate to charity online ... 6,350,603 people have helped raise £355,251,331 for 5,769 charities using Justgiving

HM Revenue & Customs: Gift aid - an overview
Gift aid – an overview. Gift aid is tax relief on money donated to UK charities. We treat donations as if the donor had already deducted basic rate tax from them.

Gift Aid : Directgov - Money, tax and benefits
If you're a taxpayer, use Gift Aid to increase the value of gifts to charity, also claim tax back if you're a higher rate taxpayer

Ramblers Association | Gift Aid | Gift Aid Calculator
Gift Aid Calculator ... You can increase the value of all gifts you make to the Ramblers' Association - including your membership fees - by 28% ... at no cost to you!

Gift Aid - FAQs
Gift Aid - FAQs. Summary: Everything you've ever wanted to know about Gift Aid.

cascinfo.co.uk | Gift Aid | What is Gift Aid?
What is Gift Aid? ... Gift Aid has been available for many years to encourage individuals to give to charities. Since 2002, it has also been available to individuals making cash ...

Justgiving - About Gift Aid
About Gift Aid. Under the Gift Aid scheme, charities can reclaim an extra 25% in tax on every eligible donation by a UK taxpayer. Between 6 April 2008 and 5 April 2011, the ...

National Trust | Visits | Essential information for visitors | Gift ...
Some National Trust properties operate the Gift Aid on Entry scheme at their admission points. ... Some National Trust properties operate the Gift Aid Admission scheme at their ...

Cancer Research UK: Gift Aid explained
Cancer Research UK’s Gift Aid explained page: find out about how to claim Gift Aid on your sponsorship money or donation, adding 28p in the pound on all money raised!

National Theatre : Gift Aid and Tax Effective Giving : Gift Aid
Gift Aid Gift Aid Gift Aid allows charities to reclaim the tax from the Inland Revenue that they would otherwise have to pay on all donations they receive.