Gift Aid is a UK Government tax relief scheme designed to encourage charitable giving.
It allows eligible charities to claim back the basic rate of income tax paid by donors on their donations.
Donating through Gift Aid means for every £1 donated, the charity can claim an additional 25p from HM Revenue & Customers (HMRC), making your donations go even further. It will not cost you any extra to do this.
As a donor, you can also benefit from tax relief on your charitable contributions, depending on your tax bracket.
How Gift Aid works
To participate in the Gift Aid scheme, the charity you are donating to must be registered with the HMRC and recognised as a Gift Aid charity.
When donating to an eligible charity, you will be asked if you would like to add Gift Aid to your donation. If you choose to do so, the charity will then be able to claim an extra 25 per cent on top of your donation without any additional cost to you.
For example, if you were to donate £100 to a charity and add Gift Aid, the total value of your donation becomes £125, with the additional £25 claimed by the charity from HMRC. Making your charitable donation stretch much further.
Eligibility requirements for donors
To be eligible for Gift Aid, you must:
How donors can benefit from Gift Aid
While Gift Aid primarily benefits charities by providing additional funds, donors can also benefit from tax relief on their charitable contributions, if they are a higher rate or additional rate taxpayer.
In England and Northern Ireland:
Higher-rate taxpayers (paying 40 per cent tax) – can claim back the difference between the higher rate of tax and the basic rate of tax on the total value of the donation, which amounts to 20 per cent of the gross donation.
Additional-rate taxpayers (paying 45 per cent tax) – can claim back the difference between the additional rate of tax and the basic rate of tax on the total value of the donation, which amounts to 25 per cent of the gross donation.
To claim this tax relief, you can either include your Gift Aid donations on your Self-Assessment tax return or ask the HMRC to amend your tax code if you are employed and pay tax through PAYE.
Gift Aid is a valuable scheme that benefits both charities and donors in the UK. By understanding how Gift Aid works and ensuring that you make your donations tax-efficient, you can support your favourite causes while reducing your income tax liability.
Always remember to keep records of your donations and provide accurate information to the charities you support, as this will ensure a smooth process for both parties involved.
If you need any advice regarding Gift Aid, we are happy to help. Get in touch today.