Ross Palmer, senior tax manager at Sayer Vincent, explains the tax benefits of charitable donations to mark Gift Aid Awareness Day on 6 October, organised by Charity Finance Group (CFG)
This year’s #TickTheBox campaign will focus on the value of Gift Aid and charities will be invited to share across their social media, website and newsletters the impact that Gift Aid has on the people and communities they serve.
Gift Aid is an incredibly important source of additional income and something charities need to always remind their donors how it can boost their donations.
The Charities Aid Foundation (CAF) published research earlier this year that warned that charities are missing out on hundreds of millions of pounds because 23% of eligible donors do not use Gift Aid.
The CAF research found that some 68% of full-time workers say they use Gift Aid when donating to charity, which is worth £1.3bn to the charity sector. However, according to the Charity Finance Group more than £500m is unclaimed.
This highlights just how important it is for charities to remind tax paying individuals to use Gift Aid when making a donation. Charities can reclaim the basic rate income tax the individual has paid on the donation, as long as the individual provides the charity with a Gift Aid declaration.
Changes to the basic rate of tax and the impact on Gift Aid
Currently Gift Aid increases the value of the donation by 25%, based on the basic rate of income tax being 20%. The Chancellor announced in September 2022 that the government intends to reduce the basic rate of tax to 19% from April 2023, which will result a reduction in the Gift Aid claimable.
In order to help charities adjust to this reduction, the government has agreed that for donations made until March 2027 an additional transitional relief on Gift Aid will be paid in order to match the current rate of 25%.
This is expected to be run in a similar manner to the previous transitional relief scheme that applied from 2008 to 2011, with the relief being automatically calculated and paid by HMRC. However, for donations from April 2027 onwards this relief will no longer apply and the Gift Aid claimed will reduce to 23.45%.
Complying with Gift Aid
Our Made Simple guide to Gift Aid points out the rules to follow and explains how charities can minimise the risks of errors being found during inspections. Charities claiming Gift Aid are subject to inspection by HMRC to ensure compliance.
The Gift Aid Small Donations Scheme (GASDS) was introduced on 6 April 2013 and allows charities to claim a Gift Aid like top up payment from HMRC on small donations made in cash or by contactless card payment of up to £30.
GASDS has fewer requirements, for example there is no requirement for a Gift Aid declaration and the donor does not have to have paid sufficient UK tax. However, the amount payable under GASDS is capped and the scheme is subject to its own set of rules and requirements which charity finance professionals must understand.
Certain concessions introduced during the pandemic in relation to ticket and loan refunds have now been made permanent. Many charities had to cancel events as a result of the pandemic and the government has agreed to allow individuals to donate any waived refunds of ticket purchases or loans to the charity under Gift Aid without the charity first having to pay the refund or loan to the individual.
About the author
Ross Palmer is a senior tax manager at Sayer Vincent
Source: https://www.accountancydaily.co/importance-using-gift-aid-tax-free-charitable-donations