Gift Aid Donations

As you may have seen in the local press one of our colleagues, Jo Richards, was brave enough (some might say daft enough!) to agree to be locked in a dog kennel for the afternoon in aid of the Bath Cats & Dogs Home.  It was all in aid of a fantastic charity and in total £14,409 was raised by the various businesses taking part, of which Jo managed to raise £3,020.

Most, if not all, of that sum would have been gift aided by the donors in order that the charity can reclaim from H M Revenue and Customs (HMRC) the basic rate tax suffered by the donors, making the donations worth even more to the charity.  If the whole of the £14,409 was paid under Gift Aid this would mean that the charity could claim an additional £3,602.

Although the rules regarding Gift Aid donations have not changed too much in the past few years it is always useful to have a recap on the basic principles of the Gift Aid system and, in particular, to make sure that you do not fall foul of the requirement for you to have paid sufficient tax to cover the tax that the charities in question reclaim from HMRC.

I am sure many of you will have ticked the relevant Gift Aid box either on donation forms or via online giving sites to sponsor friends taking part in marathons, sponsored swims etc. You may not, however, have considered your personal tax situation when ticking that box.

Whether making one-off donations, as mentioned above, or if you have regular standing orders set up to donate to charities of your choice, the Gift Aid position is normally the same in that any donation you make is deemed to have been made net of basic rate tax of 20% since you have already paid Income Tax on the cash donation that you are making.  For example, if you made a donation of £80 then the charity would be able to reclaim an additional £20 from HMRC to represent the 20% basic rate tax that you have already paid.

One of the requirements of donating under Gift Aid is that you have paid sufficient tax in the tax year to cover the donation made.  If you have not paid sufficient tax to cover that which the charity reclaims from HMRC then it is your responsibility to pay over the difference to HMRC.  This can be done via a Tax Return, but if you do not normally prepare a Tax Return or if the Revenue have not issued you with one then you have an obligation to inform HMRC of the tax which you are required to pay over by 5 October following the end of the tax year.  For this reason it is normally recommended that those individuals who will not pay sufficient tax should not Gift Aid any donations that they make to charity.

If you find that you have not paid sufficient tax to cover a donation made under Gift Aid but know that you paid enough tax in the previous tax year then there is the ability to “carry back” that donation and treat it as if it had been paid in the previous tax year.  This can also be a useful planning tool.  For example, if you made a donation on 30 April 2014 and, in the process of preparing your Tax Return for the year ended 5 April 2014, have discovered that it would be more beneficial had you made that donation on or before 5 April 2014 then you can complete the relevant box on your Tax Return to treat that donation as if it had been paid in the year ended 5 April 2014 and obtain the tax relief more quickly.  This is even more valuable if, for example, you will only be a basic rate taxpayer in 2014/15, but had tipped over into the higher rate tax bracket in the year ended 5 April 2014.  To be able to carry back the donations in this way the donation must be made before the Tax Return is submitted and you must make the appropriate entry on your Tax Return.

There is an added incentive for higher rate taxpayers (or additional rate taxpayers) to Gift Aid any donations to charities since they can reclaim an additional 20% (25% for additional rate taxpayers) from HMRC by making the appropriate entries on their Tax Returns or notifying HMRC accordingly.

Such taxpayers may also therefore want to consider their position before the end of the tax year on 5 April since if they are on the verge of tipping over into the higher rate of tax or additional rate of tax then making a Gift Aid donation before 5 April sufficient to bring them back into the lower tax bracket could be beneficial.  This is also applicable for those taxpayers with taxable income approaching £100,000 since personal allowances start to be withdrawn for those with income in excess of £100,000 meaning that a marginal rate of 60% tax can apply.

It is always a good idea to keep a detailed list of any donations that you make throughout the tax year which you have paid via Gift Aid otherwise it is easy to overlook them when it comes to preparing your Tax Return.

The above is for general guidance only and no action should be taken without obtaining specific advice