Gift aid is a commonly overlooked, yet potentially significant tax relief…
If you make donations to charities through the gift aid scheme you could be entitled to claim back up to 25% of the donation value, either as a tax relief or to donate back to your charity.
It is important to keep track of your donations and keep records so that you are able to add these to your tax returns come the New Year.
We have been advising many clients who were unaware of this opportunity, allowing them to claim a tax relief, or give additional donations to their chosen charities.
How it works for a higher rate taxpayer?
If you pay tax at the higher rate (currently 40%) and your chosen charity is registered in the gift aid scheme, they will be able to reclaim 25p in every £1 that you donate.
What many overlook is that you can also reclaim an extra 25p in every £1 yourself, on your annual tax return, upon which there is an option (if you so choose) to pass the amount reclaimed back to the charity.
Reclaiming gift aid – an example
David is a 40% higher rate taxpayer and donates £1,000 to charity over the year.
As he pays regular Income Tax on his earnings, the basic rate of tax on his donation has already been covered by his tax payments and the charity claims back the basic rate tax of 20% from HMRC. So the charity is able to make a repayment claim of £250 (£1000 divided by 4).
As a higher rate taxpayer, David can claim the difference between the higher rate of tax at 40% and the basic rate of tax at 20% on the total value of his donations, so he can claim 20% of £1250, a total of £250.
If the example above was an additional rate taxpayer (currently 45%) they would have been able to reclaim £310.25 (£1250 × 20%) plus (£1250 × 5%).
Other points to note
- You must pay at least as much UK tax (Income Tax and/or Capital Gains Tax) as the amount of Income Tax that the charity is reclaiming.
- Claims are made via the self assessment tax return, therefore the earliest year in which a claim can be currently made is for the year ended 05 April 2013.
If you have any questions on adding gift aid contributions to your tax return or would like to discuss our tax compliance services, please contact our tax team.
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