The Gift Aid scheme has proved an invaluable source of income for charities, worth around £1 billion annually to good causes.
Once the processes are in place, it is a straightforward way for charities to increase the value of cash gifts from those who pay tax in the UK by claiming back the basic rate tax paid by the donor. It can increase the value of donations by a quarter – without costing the donor an extra penny.
There are some key things charities should be aware of when considering the Gift Aid scheme.
1. Gift Aid can be claimed on money given by individuals, sole traders or partnerships who have paid an amount of tax equal to or more than the tax reclaimed on their donations.
2. Gift Aid cannot be reclaimed on donations from a company, made on behalf of someone else, or given in return for a benefit (subject to some exemptions) for either the donor or a person connected to them.
3. Even if you are not registered with the Charity Commission, you may have charitable status with HMRC, for example many very small charities, some schools, Academies and Community Amateur Sports Clubs.
4. Gift Aid can be claimed retrospectively up to four years after the end of the accounting year to which the claim relates.
5. Accurate records need to be kept, including the amount of each declaration, name and address of each donor, date of donation and a Gift Aid declaration by the donor. An example declaration can be found on the HMRC website.
6. HMRC undertakes compliance visits to charities to check that they hold the correct information.
7. Gift Aid can only be claimed on an individual’s declaration. HMRC will reject claims in the name of ‘Mr and Mrs’ for instance.
8. Gift Aid can also be claimed on sponsored events for a charity. Again, there is an example form on the HMRC website, where instead of having to have a separate declaration for each individual, the sponsor form can be written to include all relevant details. However, HMRC will reject claims where people put ‘c/o their work address’ in the address column.
9. In certain circumstances membership fees, event ticket prices and entrance fees may qualify, in part, for Gift Aid, although you need to watch the detail of the rules.
10. If volunteers or Trustees are eligible to be paid expenses that they incur in the course of their work with a charity, but choose not to take those expenses, they could claim the expenses and then donate an equivalent amount back under Gift Aid, and the charity will gain the tax benefit.
11. Higher rate tax payers can put the amount of Gift Aid claims on their tax return, and they will receive higher rate tax relief on the donations. So, if all your income is fully taxed at source, they will receive a repayment!