What is Gift Aid?
Gift Aid is a scheme that allows charities and CASCs to claim back the basic rate tax already paid on donations by the donor and is currently worth 25p for every pound donated by UK taxpayers.
How do you calculate Gift Aid?
The calculation is:
(donation) x 20 (basic rate of tax)
80 (100 – basic rate of tax)
How do charities claim Gift Aid?
UK, EU, Norwegian and Icelandic charities may be eligible for Gift Aid. Charities wishing to claim Gift Aid need to register with HM Revenue & Customs (HMRC) for tax purposes. HMRC will send you the Charity Application Form to nominate a member of staff to make the claims and the claim forms. For further information read this page on registering and claiming Gift Aid.
What do donors have to do?
A donor has to make a declaration giving the charity permission to claim the tax back on their donations. This declaration can be made orally or in writing and can be backdated for donations made in the past 4 years and also any future donations. You can download our sample Gift Aid declaration form here.
Are all donations eligible?
For a donation to qualify for Gift Aid, the donor must be a UK taxpayer. They must pay at least enough Income or Capital Gains Tax in the year of the donation as your charity will reclaim on their donations from HM Revenue and Customs.
So, if a donor has given you £100 in a tax year, they must have paid at least £25 in tax that year to cover the amount your charity will reclaim in Gift Aid.
What is Transitional Relief?
Before the 2008 Budget, Gift Aid was worth 28p for every pound. However, this was changed to 25p per pound due to a lowering of the basic tax rate from 22% to 20% and left charities facing a considerable loss. To make sure that charities had time to adjust to the loss in revenue, the government introduced a temporary scheme called Transitional Relief, which made up for the short-fall, giving charities an extra 3p per pound on all Gift Aid claims. This will run until April 2011.
Example:
Donor gives £100
Charity claims basic rate tax on gross gift from HMRC (20% of £125) £25.00
Transitional relief £3.20
Total Charity receives £128.20
You do not need to claim for Transitional Relief. HMRC will automatically calculate this for you and add it to your Gift Aid payment.
What about Higher Rate taxpayers?
Gift Aid only applies to the basic rate of tax (20%). However, if a donor pays a higher rate of income tax, either at 40% or 50%, they can reclaim the difference between the basic rate of tax and the highest rate of tax they have paid after making a charitable donation.
This reclaim can either be kept by the donor or donated back to a single charity of their choice through their self assessment form.
How does it work?
The following examples show the full potential of gifts made to charity by a donor paying tax at each rate:
|
|
Donation |
Charity claims |
Transitional relief |
Total donation |
Donor reclaims |
Full potential |
|
Basic rate taxpayer (20%) |
£100 |
£25 |
£3.20 |
£128.20 |
- |
£128.20 |
|
Higher rate taxpayer (40%) |
£100 |
£25 |
£3.20 |
£128.20 |
£25.00 |
£160.25* |
|
Higher rate taxpayer (50%) |
£100 |
£25 |
£3.20 |
£128.20 |
£37.50 |
£176.27* |
*Full potential with Gift Aid and Transitional Relief added if higher rate relief is donated to charity. This is the best case scenario and it is often not that simple, as the donor may have other transactions or reliefs to consider. However, this is an illustration showing how much further the initial donation could go with the extra relief claimed.
How is this done?
The donor can reclaim the tax on their self assessment tax return. The standard tax return form is called the SA100 and is available online or as a paper version. There is also a short version available called the SA200 which is available in paper format.
If they do not complete a self-assessment form, they can contact their local tax office and reclaim the donation using the P810 form.
To discuss Gift Aid further, please contact HAVCO's Funding Officer Carmen Gonzalez on 020 8880 4081, cg@havcoharingey.org.uk
