In December, the month of celebration people start to donate generously. While December is the month of spending, January is the month of cutting back.
According to a report by CAF 2018. In terms of donating money, the peak months for giving are November and December at 36% and 37% respectively having donated in the last four weeks compared to an average across all months of 32%. Similar trend was seen in 2006, when these were the two months with the highest levels of giving and is likely related to various campaigns such as the Poppy Appeal, Movember, and giving Tuesday running in November and the Christmas appeals of December.
While we are aware of how to cut back on money, very few are aware that they can actually claim back a little from HMRC as well through tax relief giving on the donations. Charities don't pay tax on most types of income, which is why the tax paid on financial gifts can be claimed back.
This applies to individuals, sole-traders and people in partnership. Charitable donations are not allowable expenses for sole-traders and those in partnerships. Meaning that any donations made are treated as being paid by yourself, and you personally receive tax relief for the donation.
According to financial times in the year 2017 Gift Aid tax repayments totalled £1.3bn.
How does it work
If you're a UK taxpayer, Gift Aid increases the value of your charity donations by 25%, because the charity can reclaim the basic rate of tax on your gift – at no extra cost to you. This means that for every £1 donated to charity, the charity can reclaim 25p.
If you are higher tax payer, Gift Aid allows charities to claim basic rate tax of 20% on your donation. But higher rate taxpayers pay 40% tax.
So, if you're a higher rate taxpayer, you can claim, from HMRC, the difference between the basic rate of tax claimed by the charity on your donation and the higher rate of tax you actually pay.
It is important to highlight that, in addition to some of the complexities caused by the tax reliefs, there is a lack of clarity over what a charity is (both generally and for tax purposes). This can cause confusion both for donors and the organisations themselves. For example, if you are a charity selling donated goods. Money raised by selling donated goods like clothes does not qualify for Gift Aid. The owners of donated items will need to be explained that the shop, auction or website will act as their 'agent' to sell goods on their behalf if the owner will give the sale proceeds (minus any commission charged) to the charity as Gift Aid donation. The owner has the right to keep all of the proceeds from the sale of their goods. They can choose to donate all or part of the amount. If you are working in such a setting, (selling donated goods) You can claim Gift Aid on the agreed amount after any commission (including VAT) has been deducted. The owners of donated goods will usually make a Gift Aid declaration when they 'sign up' for the scheme, before their goods are sold.
What I need to do?
The process is very simple all you need to do is fill out a Gift Aid Declaration (GAD) form. This is a statement from you to the charity confirming that you want to donate through Gift Aid and receive tax back on your donation. You can claim for a donation within 4 years of the end of the financial period you received it in. This is the tax year (6 April to 5 April) if you're a trust. Charities don't pay tax on most types of income, which is why the tax paid on financial gifts can be claimed back.
Once the individual has made a gift aid declaration, their basic and higher rate tax bands are extended by the gross charitable donation, increasing the proportion of their income taxed at the lower rates.
'My only income is pension and the rent I receive from my property (which is not my main home). I want to give that property in charity. Can I still be benefitted from the gift aid scheme?'
The answer is yes. You can, provided you keep the required documentation. However, the way you give the property to charity can have further tax implications. Other taxes such as capital gains tax can be involved. There are different ways in which you can make a donation.
You can consider the following options:
- Giving the asset to the charity.
- Selling the property and giving the sale proceeds to charity.
- Giving the asset to the charity and then selling it on the behalf of the charity.
However, each option has its own tax implications. It depends on your individual situation which option will help you save the tax in the most effective way. We, here at Taxaccolega can help you figure out the most tax-effective way to make the donation.
If you make gifts to charity or you are thinking about it, and you would like more information about how you could save tax, get in touch with Taxaccolega, accountants in Croydon through email on email@example.com or call on 02081270728 and we will guide you accordingly.