If you regularly donate to charity you may already be familiar with the concept of Gift Aid. Or you may have heard about it, but are not exactly sure what it is.
Gift Aid is a tax relief allowing UK charities to reclaim an extra 25% in tax on every eligible donation made by a UK taxpayer. When you donate to a charity you will be asked if you want to add Gift Aid and then to confirm that you are a UK taxpayer.
Standard Rate Taxpayers
You can add Gift Aid to the donations you make, the charity will receive the extra 25% and there is nothing further you need to do.
Higher Rate Taxpayers
If you pay tax at the higher rate, you can personally reclaim tax relief on your gross donation at 20% (i.e. the difference between the higher rate of tax at 40% and the basic rate at 20%). To claim this tax relief you need to keep a record of all the donations you have made during the tax year. If you donate through an online site such as JustGiving, there is the option to login and print a copy of your donation history for the tax year. When completing your tax return, include the amount of donations made to claim the relief.
Here’s an example:
You donate £100 to a charity.
They claim Gift Aid, increasing the value of your donation to £125.
As a higher rate taxpayer you pay tax at 40% so you can personally claim back 20% of the gross donation.
20% x £125 = £25 to be claimed back
In your tax return you normally only report items for the previous tax year, but for Gift Aid you can also claim tax relief on donations you have made in the current year (up to the date you send your return). There are 2 reasons why you might choose to do this:
• To get tax relief sooner
• If you were a higher rate tax payer in the previous tax year but no longer are
When we prepare tax returns for our clients we always ask them if they donated to charity under the Gift Aid scheme to ensure that all relevant claims are made.
So giving just got a whole lot better!