Many people don't realise that gift aid is worth an unbelievable amount of extra money to charities. Millions of pounds extra could be going to charity every year if the donor simply checked a little box on their donation form called the gift aid declaration box.

How does gift aid work for charities?

Gift Aid allows charities and CASCs to reclaim basic-rate tax from monetary donations by UK taxpayers. Effectively, it allows the eligible charity or CASCs to receive an extra 25pence for every £1 donated. For example, if a donor, who has already paid UK income tax makes a donation of £100, the charity could claim an extra 25% (£25) back from HMRC, resulting in a £125 donation received.

According to the statistics published by HMRC, the Gift Aid is relatively stable, bringing roughly 1.4 billion pounds to charities a year. Annual income was reported at £1.35bn in 2019 and rose to £1.4bn in 2020. Even since the start of the COVID-19 pandemic, the fund has maintained stability with a mere 1% drop in donations. 

To demonstrate exactly what Gift Aid is worth to charities, we will unpack the various benefits Gift Aid has on each of the parties involved and how it relates to the charity.

Who does gift aid benefit?

• Charities
• Community Amateur Sports Clubs
• The donor
• HMRC
• The charity benefactors

What is Gift Aid worth to charities?

Worth is more than just financial benefit. It also includes the social impact and assistance received as a result of financial benefit.

The major benefit charities receive when they claim Gift Aid is through the expansion of income on charitable donations. Expansion by 25% allows charities to fund their operations at a level that would not be possible without Gift Aid donations.

The higher level of income can result in the more effective running of charitable operations, expanding the size of the charity, hiring new staff, reaching more volunteers or increasing the size and effectiveness of various charitable outreaches.

Ultimately, charities are able to do more good with the contributions they receive.

Gift Aid Means the Most to Charity Benefactors

Gift Aid donations mean the most to the charity benefactors- the people that the charities support. Most charities operate by providing direct help, providing information or raising awareness about an issue.

By increasing the amount of money received by charities, the impact made by charities increases substantially. This is because their purpose can be fulfilled to a higher degree and their area of impact can be maximised. As a result, those in need benefit more.

What is Gift Aid worth to Community Amateur Sports Clubs?

CASCs also benefit greatly from Gift Aid donations, because the money received supports the donor’s sports club of choice. Amateur sports clubs, by nature, are usually not sponsored by funders and do not draw major income from their sport. As a result, these clubs can suffer from a lack of resources to support sporting activities, such as coaching or club fees.

These non-profit clubs benefit tremendously from the support of donors for the general costs of running a team. For example, buying uniforms, employing coaching staff, transportation, match fees, accommodation, etc.

The contribution of Gift Aid payments increases the funds available to CASCs by up to 25%, therefore allowing the club to operate with a higher income and be more effective in accomplishing the CASC’s goals.

What Gift Aid is worth to the Donor Plays a Role

The benefits of Gift Aid also extend to the donor. Improving the lives and welfare of others is usually its own reward, but when the impact is even greater than the donor’s donation, it serves as a great incentive for philanthropic behaviour.

This is important for charities because the relationship they have with their donors is important for giving. When charities can show their donors the impact of their charity, they are able to close the charity loop.

Donors often appreciate this, and charities benefit from showcasing the outcome of donor generosity. This has the potential to encourage future donations.   

Gift Aid can in some cases be worth a lot more to donors. While donors who are within the standard tax bracket do not receive further financial benefits, those who are subject to a higher tax rate are able to obtain additional tax relief for gift aid donations on their tax returns.

This is how it works:

When a higher rate taxpayer (40%) makes a charitable donation of £100 their basic rate band is extended by £125. The charity or CASC then claims 25% on the donation, exactly the same as all other donations. Except, the donation of £125 that would have been taxed at 40% will now only be taxed at 20%.

The taxpayer will then be able to reclaim £25 on their self-assessment tax return. Individuals that pay an even higher rate of tax (45%) receive additional relief still. (25% rather than only 20%)

What is the Gift Aid Small Donations Scheme worth to charities?

The GASD scheme is a way for charities to benefit from gift aid on small donations (under £30) without a gift aid declaration. This means that the standard Gift Aid benefits of an extra 25% can be obtained through donations like collection tins and bucket collections, where the capture of the donor’s personal identity or details is not practical. These donations are often cash or contactless payments made in person.

Many charities, particularly churches, rely largely on regular cash donations in collection boxes, often eligible for GASD claims. However, these donations require a physical exchange made in person, and as a result, have suffered a 25% reduction since the start of the COVID-19 pandemic in 2020.

While the number of online donations has increased with the pandemic (these are not eligible for GASD claims), physical and social distancing has negatively affected the regular GASD claims that charities and churches rely on. Statistics released by HMRC showed that the income for tax relief on GASDs had fallen from £40m to £30m during the pandemic.

Can charities increase the limit on gift aid claims?

Charities in the UK are eligible to claim a maximum of £8,000 through the GASD per year. Charities can, however, increase that limit by applying ‘community buildings claims’ instead of ‘anywhere in the UK’.

If the buildings owned by a charity are in different local authorities, each building could qualify for its own limit of £8,000. For example, a charity with 2 community buildings in different local authorities, would have a total GASD claim limit of £16,000. HMRC provides an extensive set of eligibility conditions and limitations for GASD.

Final Thoughts

It is safe to conclude that Gift Aid is worth a lot to charities, not just with regard to the financial implications, but also with regard to the substantial social benefits created by the scheme. So find out how to claim Gift Aid and how it affects your tax so you can help charities like Greater Change make a difference.

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