Gift Aid Article Index for
Gift 		Website Links For
Gift 		 

Information About

Gift Aid
  CATEGORIES ABOUT GIFT AID
   
taxation in the united kingdom
   
charities
   
APPAREL
BABY
BEAUTY
BOOKS
CAR TOYS
CELL PHONES
DVD'S
ELECTRONICS
GOURMET FOOD
GROCERIES
HEALTH & PERSONAL
HOME & GARDEN
JEWELRY
MUSIC
MUSIC INSTRUMENTS
OFFICE PRODUCTS
SOFTWARE
SPORTING GOODS
TOOLS & HARDWARE
TOYS
VIDEO GAMES
SHOPPING HOME
MORE SHOPPING...



The details of the scheme are complicated, and this article only gives an outline of its basic feature.

Gift Aid allows individuals who are subject to UK Income Tax , to complete a simple, short declaration that they are a UK taxpayer. Any cash donations that the taxpayer makes to the charity after making a declaration are treated as being made after deduction of income tax at the basic rate (22% in 2006/7), and the charity can reclaim the basic rate income tax paid on the gift from HMRC . For a basic-rate taxpayer, this adds approximately 28% to the value of any gift made under Gift Aid. Higher-rate taxpayers can claim income tax relief, above and beyond the amount claimed directly by the charities. The rate of the relief for higher-rate taxpayers in 2006/7 is usually 18%, the difference between the basic rate (22%) and the higher rate (40%) of income tax, although recipients of savings income (taxed at 20% and 40%) and dividend income (taxed at 10% and 32.5%) can achieve higher rates of tax relief (20% and 22.5%, respectively).

Originally, declarations had to be made in writing. Declarations can now be made verbally, but the charity must confirm the declaration in writing and keep a copy of the confirmation. If the taxpayer incorrectly makes a declaration, the charity is still able reclaim the tax that should have been paid on the gift, but the individual is required to pay the same amount to HMRC to make up the difference.


GIFT AID ON DONATED GOODS

Gift Aid was originally intended for cash donations only. Since 2006 however, HMRC rules have been changed to allow tax on the income earned by charity shops acting as agent for the donor to be reclaimed, although to operate effectively, the charity needs HMRC-approved systems to be able to record and track the progress of each item from receipt to sale, and confirm with the donor that the donation should still go ahead. HMRC GA on Donated Goods


A PRACTICAL EXAMPLE

  • Mr X donates £100 to charity.


Mr X is a higher-rate taxpayer, paying 40% income tax on part of his income. He has made a Gift Aid declaration to the charity. As a result:
  • the £100.00 gift is treated as being made after deduction of basic rate tax at 22%. The Gross value of the gift before tax is £128.21 (£100.00 × 100/78), - this is the amount of money you would need to earn to receive £100.00 after tax.

  • the charity can claim the £28.21 of basic rate tax (£100.00 × 22/78) that the taxpayer is treated as having paid on the gift, effectively an extra 28% on top of the value of the £100.00 donation.

  • as a higher-rate taxpayer, Mr X can also claim back 18% of the gross value of the gift, £23.08 (£100.00 × 18/78), when he makes his Tax Return .



The benefits to the charity



The cost to the donor



Revenue to HMRC

Not all monies paid to HMRC during this transaction are refunded, so when giving to a charity there is generally also a donation to The Treasury .
  • Any National Insurance contributions paid by the employer and employee are not refunded.

  • Not all taxes paid by the higher-rate taxpayer are refunded. For people without savings and dividend income, this equals 15.37% of the cash donation as the following example illustrates:


  • If the charity does not reclaim the tax this money stays with The Treasury.

  • If the giver does not submit a self-assessment or forget to fill in the appropriate information on the self-assessment, the refund to the giver stays with The Treasury.



REFERENCES


  • James Kessler QC, ''Taxation of Charities'', 5th edition 2005, Key Haven Publications



EXTERNAL LINKS