The Gift Aid scheme is a program run by HMRC that is beneficial to charities, community amateur sports clubs (CASCs), and donors.

When UK taxpayers pay tax on income and capital gains and then donate to charity, the tax portion of the donation has already been paid, and they become eligible for a rebate.

Depending on the donor's tax rate, HMRC rewards giving by providing a 25% tax rebate on the donation. When base rate taxpayers donate, the tax is repaid to the charity only. However, when a higher rate taxpayer contributes, the rebate benefit is extended to the charity and the donor.

Gift Aid Declarations

Why is a Gift Aid declaration important?

For a donation made to a charity to qualify for a Gift Aid top-up, specific rules around tax contributions need to be followed.

In general, for charities to claim the extra 25% on donations, the individual who donated must have already paid at least the amount being claimed back in tax during that tax year.

Effectively this means that you can only donate a maximum of four times the amount you have paid in UK tax within that tax year.

If you have not paid enough tax, you can still donate as much as you want. However, you should not make a Gift Aid declaration when making that donation. If you make a Gift Aid declaration when you have not paid the correct amount in tax, you will be responsible for the charity's Gift Aid claim.

What happens when I make a Gift Aid Declaration?

Gift Aid declarations, made in conjunction with the donation by the donor, represent permission for the charity to claim the tax you have paid on that money from HMRC.

By doing so, you are saying you have already paid the tax HMRC will use to top the donation up. If you have not paid the sufficient tax, you are not recommended to check the Gift Aid box when donating, as you will be liable to pay the extra amount the charity claims on your behalf.

How do Gift Aid Small Donations Affect Tax

The rules for Gift Aid Small Donations (GASD) are slightly different. GASDs are donations that are cash or contactless in nature and do not exceed £30.

These donations typically take the form of collection tins or donation boxes at charities or churches. These payments do not require a declaration and can therefore be made anonymously.

Due to this fact, it is possible to make donations eligible for the 25% GASD top-up without worrying about the amount of tax paid.

Since there is no tax relevance or identification involved with small donations, no tax rebates for the individual who contributed are possible through the Gift Aid Small Donations Scheme. To find out more about Gift Aid Small Donations, check out this article. (Linking opportunity for GASD article)

Who benefits from Gift Aid?

Gift Aid has incredible benefits for the donor, the high-rate taxpayer, the charity benefactor, and HMRC. In the article, "How much is Gift Aid worth to charities" (Linking opportunity), the benefits of Gift Aid to each party are explained. While charities and CASCs receive the most benefit from Gift Aid, meaningful benefits are available to donors.

Generally speaking, the donor's primary benefit is the knowledge that their giving is doing more good than the amount they gave. This is more of a qualitative benefit of the impact they are making with their donation, rather than a quantitative or financial benefit to them.

Donors who are within the basic tax rate (20%) do not receive any tax relief or financial benefit through Gift Aid giving. The worth of their donation is, however, still increased.

How does Gift Aid work for higher-rate taxpayers?

High-rate taxpayers who pay tax at 40 or 45% on income or capital gains tax are eligible for a tax rebate through their charitable donations. These taxpayers can claim back the difference between their 40 or 45% and the basic rate of tax (20%) on charitable contributions.

For example, a donor contributes £100. The charity of choice claims a 25% top-up making the donation equal to £125 in total. The 40% tax rate donor can then claim back 20% of £125 and receive a tax rebate of £25. In the example above, the 45% tax rate donor will receive a tax rebate of £37.50.

Self Assessment Tax return

In order to claim your higher rate Gift Aid tax rebate, you can request for HMRC to amend your tax code for you, so the rebate is processed automatically. Alternatively, you can fill in the details of your donations in the necessary section of your self-assessment tax return. This is possible for employed and self-employed citizens alike.

When can I claim Gift Aid Tax Relief?

Normally, the self-assessment income tax return only includes things from the previous tax year. However, with Gift Aid, UK taxpayers are able to claim Gift Aid tax relief on donations they have made in the current tax year, up to the date of the income tax return submission. This can be particularly helpful to self-employed individuals who may benefit from relief sooner.

Can I claim tax relief this year?

You can claim tax relief in the current tax year if:

• You are a UK taxpayer
• You are a high-rate taxpayer
• You want tax relief sooner
• You won't pay a higher tax rate during the current year but did pay a higher rate in the previous year.

You can't do this if:

• You pay the basic rate tax
• You did not submit on time (31st of January for digital submissions)
• The amount of tax you have paid in the last two years is less than 4 times the amount you donated in that same period.

In Summary

In summary,

• Higher-rate taxpayers can get up to a 25% tax rebate (depending on the rate band into which they fall) on the value of the donation they make through gift aid.
• Basic-rate taxpayers cannot get tax relief through gift aid donations
• You shouldn't make a gift aid declaration on a donation if you have not paid the value of 25% of your donation in tax in the last tax year.
• Lastly, donations under £30 do not qualify for tax relief through gift aid.

Aside from these things, your tax is not otherwise affected, except that the tax you pay is sent to a charity that is used to help those less fortunate. Learn more about how to claim Gift Aid and start donating today.

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