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How to make festive donations via Gift Aid

What individuals need to know

Nicky Owen, Partner, Professional Practices
23/11/2021
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With the festive period on the horizon, many people will be turning their attention to how they can make donations to charity. If you, like many, opt for a festive card design that supports a charity, did you know that you could also donate via Gift Aid? Donations made under Gift Aid means the charity can claim basic rate tax relief back from HMRC. 

If a donation to a registered charity in the UK is made under Gift Aid, it means that the charity can claim some funds from the UK tax authorities.

An example

  • If you donate £80 to a charity under Gift Aid.
  • The charity can claim back 25% of the donation back from the UK tax authorities, which in this case, is £20.
  • Therefore, the charity will receive £100 in total.

When you complete your tax return you gross up the Gift Aid payments and if you pay tax at a rate higher than 20%, you can claim tax relief via your tax return.

What tax relief can be claimed back, if you make a £80 Gift Aid payment?

Taxpayer Marginal rate of tax  Additional tax relief due  Reduction in tax liability  Cost of donation 
 Basic  20% 0%  £0  £80
 Higher  40% 20% £20  £60
 Additional  45% 25% £25 £55 
 Tax trap1  60% 40%  £40 £40 

1 The 60% rate of tax is implacable for those with income falling in the band £100,000 to £125,140.

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

How do you donate under Gift Aid?

Usually you will need to sign a declaration to the charity which says that you are UK resident and pay tax in the UK and this will often involve ticking a box.

If you are donating to charity in the forthcoming weeks, are UK resident and pay tax of more than 25% of the donation you are planning to make, then consider making the payment under Gift Aid.

The charity benefits and if you pay tax at more than 20% you will also benefit, if you include the payment on your tax return - a win-win for both you and the charity.

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. Always remember when making donations to tick the box.

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.

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Nicky Owen
Nicky Owen
Partner, Professional Practices
London