Individuals who make charitable donations are able to use the Gift Aid scheme if they are taxpayers. Using the Gift Aid scheme entitles the charity to receive a higher donation which is equivalent to the donation before tax is deducted. For instance, if you donate £10 to a registered charity, the charity will be able to claim back the basic rate tax that you have paid on that £10, making the donation worth £12.50. It is usual to be asked to complete a form stating that you are a taxpayer. It is crucial to ensure that you have paid sufficient tax to cover the amount which will be claimed from HM Revenue & Customs, or you may find yourself paying the shortfall.
If you pay tax at the higher rate of 40 percent or the 50p rate of tax, you can claim the difference between the basic rate of tax which is 20 percent and the rate of tax that you pay. For instance, a 40 percent taxpayer making a £100 donation is entitled to claim back £25, £125 which is the total value of the donation at 20 percent.
A company that makes charitable donations is treated differently to an individual. The donation should be made before deduction of tax. The charitable donation is then deducted from the company’s total profits. Tax isn’t paid on the donation and therefore no tax is claimed back. Deducting the amount from the total company profits provides tax relief. The regulations for tax relief on Company charitable donations are complex, which is why professional advice should be sought.
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