Gift Aid lets charities maximise the value of monetary gifts made to them by taxpayers in the UK. This is done by claiming back the tax that has been paid on the donation at the basic rate – a process that can increase the value of the donation by around a quarter. Charities gain around £1 billion each year thanks to Gift Aid.

How charities benefit

Tax can be reclaimed from HM Revenue & Customs (HMRC) on the gross amount donated. This is the amount before tax was taken at the basic rate, which is 20 per cent currently. The amount claimable can be calculated by dividing the amount donated by four. For instance, one pound donated will result in 25 pence being claimed back.

How donors can benefit

Donors who pay tax at the higher rate may also benefit from Gift Aid. The donor may claim back the difference between the basic rate of tax and the higher rate paid, which is currently 40 per cent. As former of these is 20 per cent, the amount claimed back would be 20 per cent of the donation.

Regulations

To be able to claim Gift Aid on charitable donations, a donor must have paid the same amount of income tax as they are claiming back from HMRC. If a number of donations are being made, the amount of UK tax paid must be equivalent to the amount reclaimed. If insufficient tax has been paid, the donor may have to pay HMRC any shortfall. If a charity claims Gift Aid but the tax paid by the donor is insufficient, the donor may have to repay the amount that has been claimed.

What qualifies for Gift Aid

Gift Aid can be claimed for donations made in the specified form of cash, Direct Debit, postal order, cheque, credit card, debit card or standing order. A cheque must have cleared before they can be counted.

Claiming tax paid on Gift Aid

To be eligible for Gift Aid, HMRC must recognise a charity. If a sports club isn’t a charity, it must register as a Community Amateur Sports Club. An official must be nominated by the charity to receive the tax relief on its behalf.

Recordkeeping for Gift Aid

The charity must retain all evidence of any Gift Aid declarations that have been cancelled, in addition to any benefits paid to donors. All declarations of Gift Aid must be retained, along with confirmation that the UK taxpayer has been advised that they must only claim Gift Aid if sufficient tax has been paid by them.