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Donating to charity in the festive season via Gift Aid

Nicky Owen, Partner, Professional Practices
09/12/2021
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What professional firms need to know

With the festive season on the horizon, it is an opportunity for firms to reflect on their position with regard to sending festive cards to clients and contacts. If your firm usually sends a corporate card through the post or an electronic one, it may be time to consider making charitable donations via Gift Aid instead.

Making a Gift Aid payment will also support your ESG and CSR policies.

In this article we have outlined some of the key things you need to know if you are thinking of making charitable donations via Gift Aid.

LLPs and partnerships are able to make these donations under Gift Aid to registered charities in the UK.

Donating via Gift Aid means the charity will be able to claim back some funds from the UK tax authorities.

How does an LLP/partnership donate under Gift Aid?

Effectively, each partner will need to make their own Gift Aid declaration. The declaration will need to include their:

  • name
  • full address
  • share of the donation.

Each partner will then include their share of the donation on their personal tax return and assuming that it is appropriate, claim the higher rate tax reliefs.

LLPs and partnerships will therefore need to ideally have a schedule in anticipation of any future Gift Aid payments, which can then be passed to the relevant charities.

To reduce the administrative burden, LLPs/partnerships may wish to consider whether to nominate a partner or group of partners to make all donations under Gift Aid or set up some form of charitable foundation.

Donating under Gift Aid benefits both the charities and the individual members.

How does donating under Gift Aid work?

An example

  • if an LLP/partnership donates £8,000 to a charity under Gift Aid
  • the charity can claim 25% of the donation back from the UK tax authorities, which in this case, is £2,000
  • therefore, the charity will receive £10,000 in total.

If there are 10 partners that share the donations equally, then each partner’s share is £1,000 grossed-up with a Gift Aid payment of £800.

When partners complete their tax returns the grossed-up Gift Aid is disclosed and depending on their marginal rate of tax, the higher rate relief of 20%, 25% or 40% reduces their tax liabilities.

What tax relief can be claimed back if the partner's share is an £800 Gift Aid payment?

 Taxpayer Marginal rate of tax Additional Tax relief due Reduction in tax liabilIty  Cost of donation
 Basic 20%  0% £0 £800
Higher 40% 20% £200 £600
Additional 45% 25% £250 £550
Higher Plus loss of Personal Allowance 60% 40% £400 £400

 

If the partner is not a UK taxpayer or pays tax less than the amount claimed back by the charity then the partner will need to pay HMRC the difference.

If you want to understand more about Gift Aid payments as an individual, read our article ‘How to make festive donations via Gift Aid – what individuals need to know'.

As a result of the pandemic, many charities have suffered from a reduction in donations and it is key that donations they receive are made in a tax efficient way. For LLPs/partnerships donating to charity this festive season, consider making the payment under Gift Aid.

The charity benefits and the tax burden on partners will be reduced if they pay tax at more than 20% – a win-win for both.

If you would like more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with Nicky Owen or your usual Crowe contact.


Insights

Donating to charity and a UK resident paying tax at more than 20%, consider making the payment under Gift Aid so both you and the charity benefits.

Contact us

Nicky Owen
Nicky Owen
Partner, Professional Practices
London