More individuals now exempt from income tax
The increases to the personal allowance in recent years have taken significant numbers of individuals out of income tax and the changes listed below have added to that trend:
- The increase in the starting rate band to £5,000 and the reduction of the savings rate to 0% from April 2015.
- The introduction of the personal savings allowance of £1,000/£500/nil (depending on rate of tax paid) from April 2016.
- The removal of the tax credit on dividends and the introduction of the £5,000 dividend nil rate band from April 2016.
Gift Aid works on the assumption that income tax has been paid by a donor in the first place and it is this income tax which is being reclaimed by the charity through Gift Aid.
There is a risk that more people will now pay insufficient tax to cover their gift aid donations and will have a liability to make good any shortfall to HMRC.
Individuals using Gift Aid
It is not the charity’s responsibility to check the validity of a Gift Aid declaration with regard to your individual personal tax situation. Therefore, if you are paying a small amount of, or no tax, you should consider carefully whether to sign declarations for any new donations and whether to withdraw existing declarations for ongoing donations.
If you have further questions on the tax relief available on your charitable giving our personal tax team can provide advice in this area. HMRC guidance for individuals is also available: Tax relief when you donate to a charity.
New Gift aid template
HMRC has updated the gift aid declaration guidance and templates to make the non-taxpayer’s potential liability much clearer.
Charities should check whether the wording they are using complies with the latest HMRC guidance from April 2016 as the charity may be liable if they reclaim gift aid and do not hold a valid declaration. If you have further questions please contact our charity and not for profit team who can discuss this with you.
Points for charities to consider
To minimise any drop in donations as a result, a campaign to publicise these changes and their impact on Gift Aid donations might be advisable. Most of the publicity afforded to the change by the Government, media and other bodies is neglecting to explain the impact on Gift Aid giving. By raising awareness amongst your donors you could reduce the risk of confusion resulting in a potential drop in donation income.
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