Since it was introduced Gift Aid has increased in size to be worth nearly £1bn a year to UK charities and their donors. When an individual, sole trader or partnership gives money to your charity or CASC through Gift Aid, you can take their donation – which is money they’ve already paid tax on – and reclaim basic rate tax from HM Revenue & Customs (HMRC) on its ‘gross’ equivalent – the amount before basic rate tax was deducted.
If a donor is a higher rate tax payer, they too can benefit from the tax relief as they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the total value of their gross donation.
How to make a donation using Gift Aid
In order to make a Gift Aid donation you’ll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form - one form can cover every gift made to the same charity or CASC for whatever period you choose and can cover gifts you have already made and/or gifts you may make in the future.
Gifts made jointly by people living together
You can use Gift Aid for gifts you make jointly if you tell the charity or CASC how much each of you is giving and if you each make a Gift Aid declaration.
Making sure you’ve paid enough tax to use Gift Aid
You can use Gift Aid if the amount of Income Tax and/or Capital Gains Tax you’ve paid in any tax year (6 April one year to 5 April the next) is at least equal to the amount of basic rate tax the charity or CASC is reclaiming on your gift.
You don’t necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you’ve paid could include:
tax deducted at source from savings interest
tax on State Pension and/or other pensions
tax on investment or rental income
Capital Gains Tax on gains But only UK tax counts, so if you only pay tax outside the UK you won’t be able to use Gift Aid.
How to check if you’ve paid enough tax
To work out if you’ve paid enough tax to cover your donations, divide the donation value by four. For example, if you give £100 in a particular tax year you will need to have paid £25 tax over that period. (£100/4 = £25). (Note that this calculation is based on the basic rate tax of 20 per cent).
If you don’t think you’ve paid enough tax this year, you may be able to backdate your donation.