Gift Aid Donations

Gift Aid Donations

In these tough financial times you may feel that charity needs to begin at home, but if you can spare some money to donate to good causes, there are many worthy who need your donation now more than ever.  As there are often also tax benefits (Gift Aid) to making these types of donations, it may not cost you personally as much as you thought.

If you are a higher rate taxpayer (income over £50,250 in 2022/23) and you make a Gift Aid donation, you can reclaim some tax based on the donations you have made.

What do you need to do to qualify?

You must keep a record of the donations made.  In order to qualify for the tax relief, the donation needs to be one which has been Gift Aided; this is where you will sign a Gift Aid declaration.

What’s in it for the charity/club?

The basic rate of tax can be recovered by the club or charity on donations which have been made through Gift Aid.  Therefore, if a donation of £20 was made, £5 can be claimed on the donation through Gift Aid, so the organisation receives £25.

What happens if I am a non-taxpayer and I have made a Gift Aid donation?

When you sign a Gift Aid declaration, you are declaring that you are a UK taxpayer.  You are also asked that you notify the charity/club if you are no longer a UK taxpayer.  This means that if your income in a tax year falls below the tax threshold (£12,570 in 2022/23) you must let the charity know, as you need to have paid at least the amount of tax which is being reclaimed by the charity.  If you fail to do so, you would need to stand the tax charge which is equivalent to the amount reclaimed by the charity.

Income over £100k?

If you are in a higher income bracket of over £100k of income, you may be able to benefit even further from donations made, as the personal allowance (which tapers away between £100k and £125k) can in certain circumstances be recovered. If you earn over £150k, meaning that you are an additional rate tax payer (45%), then you can recover tax at 25% on the gross donation.

Examples:

Nigel has income in 2022/23 of £62,000. He made Gift Aid donations in the tax year totalling

1.     £800.

In this case, the Gift Aid donation of £800 is equivalent to £1000 gross (the charity has recovered £200 on the donations).

Nigel’s basic rate band of £37,500 is extended by the amount of the gross donations made (£1,000).

Therefore Nigel will pay tax at the basic rate of 20% on £1,000 more of his income, rather than at the higher rate of 40%.

This means that Nigel will save 20% tax, or £200, on the donation he has made via his self-assessment tax return.

2.     Charlotte has income in 2022/23 of £115,000 and has made Gift Aid donations in the tax year totalling £500.

In this case the Gift Aid donations of £500 is equivalent to £600 gross (the charity have recovered £100 on the donations).

Charlotte’s basic rate band of £37,500 is extended by the amount of the gross donations made (£600).

In addition to this, Charlotte’s adjusted net income is £114.400 (£115,000 less the gross donations of £600).  

When your income exceeds £100,000, you lose £1 of your personal allowance for each £2 that your income exceeds this threshold. The Gift Aid donations made leads to there being a lower adjusted net income, so this means that Charlotte also benefits from having £300 of her personal allowance reinstated.

So, £300 more income is tax free (£300 x 40%) saving £120.

Plus there is £600 more income taxed at 20% rather than 40% (£600 x 20%) saving a further £120.

Charlotte therefore saves £240 in tax on the £500 donation.

If you would like to chat this through, please feel free to contact us to arrange an appointment.

You can call us on 01298 211535 or email hello@sphereaccountants.co.uk