Gift Aid was introduced in 2006 to enable tax-efficient charitable donation in the UK. It allows registered charities to reclaim basic rate income tax on the value of any donations that you make to them – increasing their value.
Here are four things you never knew about the Gift Aid scheme.
Gift Aid significantly increases the value of your donation to the charity
The Gift Aid scheme is designed to allow charities to reclaim the basic rate tax (20 per cent) paid on any donations that you make to them.
HMRC defines Gift Aid as follows: ‘Charities take your donation – which is money you’ve already paid tax on – and reclaim the basic rate tax from HMRC on its ‘gross’ equivalent – the amount before basic rate tax was deducted.’
For example, if you give £10 using Gift Aid, your donation is worth £12.50 to the charity.
You have to make a Gift Aid declaration
Gift Aid is not applied automatically. To make a Gift Aid donation, you will need to make a Gift Aid declaration. The charity that you are donating to will normally ask you to complete a simple form and the details you provide must include:
- Your full name
- The name of the charity
- Your home address
- Details of your donation (and it should say that it is a Gift Aid donation)
You do not have to complete a form every time you donate to a particular charity. One form can normally cover every gift you have made/will make to a specific charity.
You have to have paid enough tax – otherwise you may be liable
In order to claim Gift Aid on your charitable donations, you have to be paying some UK tax.
You can use Gift Aid if the amount of Income Tax and/or Capital Gains Tax that you have paid in the tax year in which you make your donation is at least equal to the amount of basic rate tax the charity is reclaiming on your gift.
If you do not pay enough tax you may be required to pay any shortfall in tax to HMRC.
To work out if you have paid enough tax to cover your donations, divide the value of your charitable donations by four. For example, if you give £100 in a particular tax year you will need to have paid £25 tax over that period.
You will sometimes need to tell HMRC about your donations
There are certain circumstances in which you need to tell HMRC about your Gift Aid donations. It is therefore important that you keep a record of the total amount of your Gift Aid donations for each tax year.
You will need to let HMRC know about your Gift Aid donations if:
- You claim age-related Personal Allowance, Married Couple’s Allowance or tax credits
- You want to carry back a Gift Aid donation to a previous tax year
- You are a higher rate taxpayer
You normally tell HMRC about your donations by completing the relevant section on your self-assessment tax return or by completing HMRC form P810.