By John Sell Published 14 December, 2012
John Sell is the Chairman of the Joint Committee of the National Amenity Societies.
Donations by individuals
The rules for those wishing to make Gift Aid donation to charity are quite simple.
- Does the donor pay UK income tax?
- In the year the donation was made did the donor pay income tax equal to or greater than the amount the charity will be able to reclaim?
- Is the organisation the donation is being made to a registered charity?
If the answer to those 3 questions is yes then a donor can make a Gift Aid declaration stating:
- Their full name
- Their home address
- The name of the charity
- Details of the donation stating that it's a Gift Aid donation
The charity will be able to reclaim the full amount of basic rate income tax on the gross value (the amount before basic rate tax was deducted) of the gift. Basic rate tax is 20% so on a gift of £100 the gross amount would be £125 and charity can reclaim £25.
Higher rate taxpayers can claim tax relief on the difference between the higher rate of tax at 40% or 50% and the basic rate of tax 20% on the gross value of their donation to the charity.
So for a donation of £100 the donor can claim back £25 if they pay tax at 40% or £37.50 if they pay tax at 50%.
Donations by companies
Companies (and unincorporated associations) can claim tax relief for donations paid to charities. Generally, relief for Gift Aid donations is available in the accounting period during which the donation is made, but there are special rules for companies wholly owned by charities.
Gift Aid donations made to charities by companies are paid gross and so, unlike the individual Gift Aid scheme, no tax is repayable to charities. For the charity the donation is treated as potentially taxable income, but is exempt from tax provided the donation is applied for charitable purposes.
Charities receiving Gift Aid donations from companies should keep accounting records of donations received so that they can identify these in their accounts and tax return.