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Have you paid enough tax to 'cover' your Gift Aid donations?

By Kevin Russell | 15 February 2017 | Comments (39)

Have you paid enough tax to 'cover' your Gift Aid donations - a blog from stewardship

HMRC are very keen to ensure that Gift Aid donors are paying enough tax. In recent times, they have come under pressure from the National Audit Office and the Public Accounts Committee to take steps to reduce the amount of Gift Aid incorrectly claimed. The public therefore need to be better equipped to know if they can or cannot make charitable donations with Gift Aid added.

Most Gift Aid donors, particularly many of you reading who choose to organise your giving with a Stewardship Giving account, will be giving very intentionally and will understand that they will need to have paid enough income (or capital gains) tax in each tax year (6 April to 5 April following) to equal or exceed the Gift Aid tax that we reclaim on their Gift Aided donations.

However, the tax landscape has changed significantly over the last few years. HMRC tell us that around 50% of adults in the UK no longer pay any income tax at all, up from around 42% only a few years back. Why is this? Some reasons are:

  • The increase in the amount of taxable income that a person can receive before actually being liable to pay a penny of tax. The tax free allowance (also known as the ‘personal allowance’) has been increased by the Government from £6,475 in 2010/11 to £11,000 in 2016/17 with a promise of further increases to £12,500 before the end of the current Parliament in 2020.
  • Pension contributions can act to further reduce taxable income.
  • Investment income can be tax free if earned within an Individual Savings Account (or, ISA) and the ISA savings limit for cash investments has increased from £5,100 in 2010/11 to £15,240 in 2016/17.
  • From 2016/17 the first £5,000 of dividend income is not taxed.
  • Also, from 2016/17 basic rate taxpayers will pay no tax on savings interest of up to £1,000.

Other changes (for example to the rent a room relief) take more income out of the income tax net.

 

Example

Mary (whose husband works full time) earns £250 per week (£13,000 p.a.) from her part time job. She faithfully pays a tithe of 10% of her income into a Stewardship Gift Aid account. She has also authorised her employer to deduct 15% of earnings to be paid into her personal pension scheme. She has savings interest from a cash ISA and a bank savings account, as well as some good dividend income from shares left to her by her late father. How much tax will she pay in 2016/17?

 

 

 

Weekly

Annual

Earnings

 

250.00

13,000

Interest income from Mary’s ISA

 

2.50

130

Dividend income

 

 16.23

 844

Bank interest

 

 0.50

 26

Gross income

 

£269.23

£14,000

 

 

 

 

Pension contributions

 

37.50

1,950

Gift Aid donations

 

25.00

1,300

 

 

 

 

Net cash after pension contributions and gifts to charity

£206.73

£10,750

 

Gift Aid donations are deemed to be paid after Mary has ‘deducted’ basic rate tax, which is 25p for each £1 of donation made. It is 25p because the 20% basic rate of tax is calculated on the gross donation of £1.25 (£1 + the 25p tax).

The gross value of her Gift Aid donations (which is the tax deductible amount) is £1,300 + £325 = £1,625. In other words, she has made Gift Aid donations of £1,625 but has ‘deducted’ £325 of tax and paid the balance, £1,300 to Stewardship. In signing her Gift Aid declaration to Stewardship, she has effectively said that she will have paid at least £325 in income tax, and authorised us to reclaim that £325 from HMRC for charitable use.

 

But has she paid enough tax?

Let’s see …

 

 

 

Annual

Earnings

 

 

13,000

Add: ISA income

 Tax exempt

 

0

Add: Dividend income paid gross

 Under £5,000

 

0

Add: Bank interest paid gross

 Under £1,000 

 

0

Less: Pension contributions

 

 

1,950

Taxable earnings before personal allowance

 

 

£11,050

Personal allowance

 

 

11,000

Income subject to tax

 

 

£50

 

 

 

 

Income tax at 20%

 

 

£10

 

 

 

 

Tax reconciliation:

 

 

 

Tax paid under PAYE

 

 

10.00

Tax deducted from Gift Aid donations, reclaimed by Stewardship

 

325.00

Shortfall in tax paid

 

 

£315.00

 

So, despite earning £13,000 per year and being left with an average of £206.73 each week before tax but having paid her pension contributions and Gift Aid donations, Mary has not paid sufficient income tax and now owes HMRC £315.00 for the year.

Is that it?

Well, not necessarily. If Mary’s husband earns enough to ‘take on’ Mary’s giving under Gift Aid (in addition to any Gift Aid donations that he may make), he could do so, provided that he has made a Gift Aid declaration to Stewardship, has paid enough tax himself, and the donations are paid out of the bank account that receives his income (for example, a joint account with Mary).

Alternatively, Mary could reduce either her pension contributions or her Gift Aid donations in order to make sure that she has enough tax on her earnings to ‘cover’ the amount of tax that is reclaimed on her Gift Aid donations.

Action Points

If your taxable income is close to the level of the personal allowance, you should be considering if you have paid enough tax to support your Gift Aid donations, using the example above as a guide. If you pay PAYE tax, your payslip can give you an idea of how much tax you are paying.

If you find that you haven’t paid enough, you should notify the charities that you have supported, immediately. They may be able and willing to adjust a future Gift Aid claim to repay any tax due on your behalf (but they are not obliged to do so, as it is your responsibility as donor to make up any shortfall).


Read more...

When is a gift not a gift?

 

Briefing papers:

Charitable Giving - Tax Relief for Higher and Additional Rate Tax Payers

Legacy Giving: Where there's a will there's a way

 



 

 

Posted by Kevin Russell

Our Legal Eagle guru and Stewardship's Technical Director, Kevin constantly has his finger on the pulse of all things tax and charity law-related. His briefing papers for charities, churches and individuals are an invaluable resource on everything from VAT to Gift Aid. 

comments:

Kevin Russell

May 19, 2015 5:10 PM
Hi Steve,

Thank you for your question.

Legally, Mary is liable for the shortfall. This is because she has 'declared' to the charity that she will have paid enough tax to cover the Gift Aid tax that they will reclaim (on her Gift Aid Declaration). In some cases, the charity may be willing to pay on the donor's behalf ... in order to maintain the donor relationship. However, donors should not rely on this! Not every charity can, or is willing, to do this.

Kevin Russell

Steve Houghton

May 16, 2015 10:12 AM
A helpful article but who would be liable to pay the shortfall to HMRC? Mary or Stewardship?

Al

May 23, 2016 10:55 AM
Hi Kevin

But if Mary needed to personally repay this shortfall to HMRC, how would it happen?
Would HMRC know to send her the bill or would she need to approach them?

Al

K

November 7, 2016 6:48 PM
Indeed. I second Al's question.
Does one need to approach the HMRC if they have been choosing to Gift Aid their donations, but either aren't a tax payer at all, or their tax income falls short?

Shouldn't the government have a better system in place and check whether people are tax payers before they pay that extra 25p/pound?

Belinda

December 21, 2016 9:39 AM
I am just about to start paying tax, based on my 2015-16 income and would like to tick the gift aid box. I think I understand that my tax bill must not be less than 25% of my donations. My tax is a small amount, so I must be careful.

However, the small print for the usual gift aid tick box gives the charity carte blanche to go back several years to also boost other gifts I made then. How do I ensure they can only consider the current gift but not past ones, other than by waiting more years before gift aiding, which would be a shame?

Come to that, may they legitimately cover gifts I may have made for that tax year, assuming I pay tax next year to cover current gifts. My gift aid potential is always going to be a year behind my giving.

My head hurts!

Thank you

Kevin Russell

February 7, 2017 12:21 PM
Al and K,

At the moment, HMRC rely on 'self assessment' (whether or not the donor is formally part of the Self Assessment tax return system). In other words, the onus is on the public to be honest about their tax affairs. The challenge, as always, is the public understanding of the system so that they don't make innocent errors. This is, in part, the reason for this blog article.

There are two options to correct a Gift Aid over-claim. First the donor can contact the charity and let them know that the donation should not have been Gift Aided after all. They may be able to deduct the amount claimed in error from a future claim. But they are not obliged to do so. Second, the donor can contact their tax office, if they have one. If employed, ask your employer for the details. Explain the issue to HMRC and they may adjust your PAYE code or send you a bill. If the amounts involved are very small, they may take no action.

HMRC have a digital agenda which will ultimately join up a lot of data that is currently held in different places. This will make it rather easier for them to automatically catch up on issues such as Gift Aid claimed in error. But the utopia may be some years off yet!

Kevin Russell

February 7, 2017 12:25 PM
Belinda,

If you have been giving to charity for past years but have not Gift Aided those donations because you were not paying tax or sufficient tax, you are right. You do need to be careful. Virtually all standard Gift Aid declarations will authorise the charity to reclaim tax on donations made in the previous four years.

So, when signing the Declaration, strike out the words "and on donations that I have made in the past four years" and, to be safe, put a covering note with the Declaration to say that you have done this because you have not paid sufficient tax. If the charity ignores this and claims Gift Aid anyway, it then becomes their responsibility to correct the tax because you did not authorise them to make the claims in the first place.

And remember to keep the position under review in the coming years!

Elaine

May 28, 2017 8:37 PM
Hi, thank you for the helpful blog post

When I became full time employed and was giving items to a charity shop I registered for them to gift aid the money they were able to obtain for these items. It never crossed my mind that the actual value of these items might have been something I should consider. I don't think it was considered by the volunteers dealing with the registration either. I can't even remember if there was a mention of the previous four years on the form, and it was all done electronically in the shop so I have really no record of it now. Plus, I have since moved into part time (unpredictable hours) work instead of full time, and therefore can't with any certainty predict whether a gift will be gift aidable in the current tax year. What should I do about future donations to charity shops while part time employed, and should I worry about a bill I can't afford for gifts made prior to losing my full time job?

Kevin Russell

June 5, 2017 5:25 PM
Hi Elaine.

Thank you for your comments / question.

What we are talking about here is 'Retail Gift Aid'. In essence, you give goods (typically clothes) in at a charity shop and they then sell them on your behalf and the proceeds that they obtain, less any shop commission and VAT is treated as a Gift Aid donation of cash from you, to them. There are three different HMRC schemes that govern how this is done. One of the schemes (known as 'Method B') is only available to trading subsidiaries of the charity, who sell your donated goods as agent for you and donate the proceed to the charity.

Because there are three different methods, the best way to proceed is to ask the shop to whom you donated the goods how much they have received from selling the goods (bear in mind they may not have sold them at that particular point in time) and how much gift aid has been reclaimed as a result, and when. It may be best to do this shortly after the 5th April each year, being the end of the tax year.

In some cases, the scheme that they operate may require them to send you a letter or e mail detailing this information but I would not rely on receiving this!

As an example, if the amount of proceeds from selling all of the goods that you donated in a tax year amounts to

Mary A

July 6, 2017 10:07 PM
Dear Kevin,
Many thanks for this blog, I am thrill to stumble on it.
I received my gift aid notice from the charity I gift aid to few weeks ago and it was first time for me. I gift aid on my salary, any benefit I received (which literally more than my salary) and any money given to me (or my childen) as a tithe. However, I noticed that since I have received the afore-mentioned notice my housing and council benefits have stopped and I was sent a letter for been overpaid!!!
Question: 1. Could this have happened because I gift aid wrongly?
2. What can I do to regulate this, as I have no almost

Herbert

September 4, 2017 3:15 PM
Are you quite sure that Mary has a shortfall in tax paid to cover the Gift Aid uplift?

She has made a personal pension contribution (albiet via her payroll) which is clearly less than

Rachel Key

September 14, 2017 11:00 AM
Do you know if there is a form or template available for to use to help those in our church to work out whether they have paid enough tax for their own personal scenario?

Sabrina Schneider

October 17, 2017 3:27 PM
Hi Kevin

In May 2015, my husband and I started to make monthly donations to Unicef via Direct Debit. At the time, we did not sign a Gift Aid declaration, since we were not sure of how it worked. Now, we decided to sign the declaration. However, we have doubts on how to proceed regarding our tax return.
For instance: we have just signed the Gift Aid declaration for Unicef (let's say, last week). We are currently filing our tax return for the year April 2016/April 2017. Can we add the payments we did in the period to the field charitable donations under Gift Aid, even if we have signed the declaration just now (October 2017)?
I searched and searched and could not find this information anywhere!

Kevin Russell

October 19, 2017 3:37 PM
Hi Sabrina,

Thank you for your question.

You will only be entitled to a repayment of tax on Gift Aid donations if you are paying tax at a rate above the basic rate of tax (basic rate is 20%). This is because the charity to whom you give your donation will claim the basic rate element.

Assuming that you are paying tax at one of the higher rates, you will be entitled to a repayment. This is done via a 'repair' to tax returns whose filing deadline fell within the last 12 months (that is, currently, the 2015/16 and 2016/17 returns) using the online self assessment system.

For earlier years for which the tax return year falls within the last 4 years, you can reclaim by writing to HMRC.

Full details and relevant links can be found by visiting https://www.gov.uk/self-assessment-tax-returns/corrections

Good luck!

Kevin Russell

October 19, 2017 3:43 PM
Hi Mary A,

If I have understood your question, you are asking if the fact that you have made donations under Gift Aid has caused your housing and council tax benefits to have stopped. This is unlikely. Donations under Gift Aid are more likely to increase your entitlement to SOME but not all benefits. The benefits rules are not something that we generally advise on. I suggest that you contact the relevant council officials for an explanation.

Kevin Russell

October 19, 2017 3:46 PM
Hi Herbert,

Would you like to resubmit your question as it appears to be incomplete.

Thanks, Kevin

Kevin Russell

October 19, 2017 3:53 PM
Hi Rachel,

Thank you for your question.

The problem with any template is that it has to be necessarily simplified as people's circumstances can be many and varied. For example, some Government benefits are taxable and some are not. I therefore suspect that there is no reliable template for all.

You may wish to adapt the example that I have given in the blog as it is reasonably generic. But do give a 'health warning' that it may not fit everyone's circumstances!

Kevin

Li

November 9, 2017 12:58 AM
I just bought a gift aid ticket without read the information carefully,then I found out I am unable to gift aid, what should I do?

Lesley Kirkham

November 25, 2017 11:34 AM
Interesting article. I have just been sent a letter from the HMRC saying that I owe them

Sarah

January 17, 2018 12:25 PM
Twice someone at a charity has decided to alter my form to assent to Gift Aid. How can I complain to tax office about these charities? How can I prove it was not me who assented? Aren

Byron

January 31, 2018 6:12 PM
I just realised I'm on the hook for my giving? This is ridiculous. Charities should send out advisory notices in November/December each year warning people that if they didn't earn enough they are on the hook for their giving.

Cancelled 1,000 gbp worth of donations annually because of this - it's on the charity to take care of their donors.

David

January 27, 2018 1:08 AM
Is it correct that self-employed cannot gift aid until they have actually paid the tax, I.e. the year following year of assessment?

Ed

February 12, 2018 4:38 PM
Hi,
Interesting article on the minefield of Gift Aid donations, thanks.
However, is reducing a pension contribution in order for a charity to receive gift aid instead really a sensible 'option' to present to a gifter?
Ed

Andrea Lawrence

February 15, 2018 2:38 PM
Hi,
Please can you advise as to how do I cancel gift aid?
I have just received a letter from a charity that says if I have not paid enough tax I am responsible to make the payment. I am in a zero hours contract.
Thanks.
Andrea

Kevin Russell

February 27, 2018 11:43 AM
Hi Sarah.

You say that someone at a charity has "decided to alter my form to assent to Gift Aid" on two occasions. Whilst you could complain to HMRC Charities in Bootle, Merseyside, this sounds like an internal issue for the charity. You should ask them to investigate and report back to you on the basis that you will report them to HMRC if they do not sort it out and resolve the internal issue. If they have claimed Gift Aid without your consent, it is up to them to correct their tax claims. Reporting them to HMRC may lead to HMRC conducting a compliance audit on them.

Kevin Russell

February 27, 2018 11:53 AM
Hi Byron,

Actually, it is the donor's responsibility to make sure that they have paid enough tax on their Gift Aid donations. If you think about it, the charity has no way of knowing otherwise.

Whilst it is good practice for charities to periodically remind donors that they need to have paid enough tax, practically, they can only do this through usual communication channels rather than individually. And many do.

But, the main purpose of the Gift Aid Declaration is, (clue is in the name), to declare that you have paid enough tax and to authorise the charity to claim Gift Aid. Donors who regularly give to charity therefore need to keep an eye on this - which is the purpose of my article.

As the current HMRC standard Declaration wording says:

"I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax than the amount of Gift Aid claimed on all my donations in that tax year it is my responsibility to pay any difference."

Kevin Russell

February 27, 2018 11:56 AM
Hi David,

It is not correct to say that you cannot Gift Aid as a self employed person until after the tax year when the tax has been paid. You pay tax FOR the tax year and your Gift Aid donations are counted for the tax year IN which they are paid.

So, if you pay tax on your self employed earnings for the year to 5 April 2018, all donations MADE in the same tax year can potentially be Gift Aided.

If you have made donations after the end of the tax year that you wish to be treated AS IF paid in the previous tax year, take a look at our Briefing Paper "Gift Aid Carry Back" at www.stewardship.org.uk/downloads/briefingpapers/Gift%20Aid%20carry%20back.pdf

Kevin Russell

February 27, 2018 11:58 AM
Hi Ed,

You raise a good point, thank you. In essence, it is down to the priorities of the donor. For example, if they are in their twilight years, have already built up a good pension or have significant non income producing assets to retire on, then they may well be prepared to reduce their pension contributions in order to continue to support their favourite charity tax effectively.

On the other hand, it may be more important to the donor to maximise their pension contributions and not to worry too much about the Gift Aid benefit to the charity. So whether one option or another is sensible will be down to individual circumstances and preference.

Kevin Russell

February 27, 2018 1:25 PM
Hi Andrea,

To cancel your Gift Aid donations, simply contact the charity and tell them that you are cancelling your Gift Aid declaration and no longer wish any donations that you make to them to be Gift Aided. They may be prepared to cancel the declaration from an historic date (for example the beginning of the current tax year), in which case, they would need to repay any tax that they have already reclaimed from HMRC on those donations. But they would not be obliged to do this.

JoJo

March 26, 2018 5:14 AM
Is there a way to find out who you have signed up to Gift Aid?

Maureen Bright

March 27, 2018 1:24 PM
I donated

Kevin Russell

March 27, 2018 6:05 PM
Hi JoJo,

Thank you for your question. I assume that you are asking as a donor, rather than from a charity perspective since all charities must keep copies of donor declarations in support of the Gift Aid that they claim and this will therefore automatically give them the information on which donors have signed up.

From the donor perspective, I am afraid that it is really your responsibility to keep track of your own Gift Aided donations. There is no central register and HMRC are will not be able to help.

So, the watchword is to keep adequate personal records!

Sorry!

William

April 20, 2018 4:16 AM
This isn't a question, I just wanted to thank you for this helpful article which has put my mind at rest regarding my charitable giving and the tax I pay.

Anna Gould

July 3, 2019 9:55 AM
Thank you for this helpful article. I have a couple of questions:
- why in the calculation of income tax is there no mention of National Income Allowance, as Mary is earning over 162 pounds per week, so I think she would have to pay 12% of what she earns over this?
- when I calculate how much tax I am paying which could be reclaimed in Gift Aid, should I look at PAYE only or PAYE and NIA?
- is there an online calculator you can recommend where you can put in your monthly income and work out your tax?
With Thanks

Peter Evans

June 20, 2020 10:29 PM
Thank you Stewardship for an excellent article with the example of 'Mary'. This has reminded me to be very careful to keep track of my gift aid donations; as previously I had to make a back payment to HMRC because I had not paid suffficient tax to cover the gift aided sum for the year, which was a nasty shock. You are right; it is the donor's responsibility to keep track, but charities are too quick to ask donors to tick the gift aid box, without very carefully checking their total at the end of the tax year.

Kevin Russell

September 16, 2020 12:53 PM
Hi Anna,

Apologies for the long delay in replying.

Gift Aid only concerns income tax (or, in exceptional cases, capital gains tax). You can therefore ignore national insurance in any calculations of how much tax you have paid.

In terms of an online calculator, HMRC has a simple tool that you can use to find out how much tax you are estimated to be paying for the year. To get the best results, you will need your PAYE tax code. You can input hourly, weekly, monthly or annual pay to get both income tax and national insurance estimates:

https://www.tax.service.gov.uk/estimate-paye-take-home-pay/your-pay

Don't forget that it is only income tax that counts for Gift Aid and the tool only gives an estimate as so much is dependent on personal circumstances.

Mrs A Ling

September 14, 2020 4:48 PM
I note some of the comments above and have too been charged £500 tax for 2019-2020 as I am no longer a tax payer. I did inform the charities of this. However there must be a number or department I can contact at HMRC to request which charity/charities are claiming gift aid. Can you help me with this please?

Kevin Russell

September 16, 2020 1:04 PM
Hi Anna,

Thank you for your question.

I doubt that HMRC will disclose to you which charities have claimed Gift Aid (due to strict taxpayer confidentiality rules). However, I suggest that you contact them and explain that you have notified the charities that you are no longer paying tax. You should be prepared to tell them which charities and the date that you notified them. They may seek evidence of this.

If the charities have gone ahead and claimed Gift Aid subsequent to you notifying them that you are no longer a taxpayer, then it is the responsibility of the charities to repay HMRC rather than yourself.

In the first instance, I suggest that you contact HMRC Charities. They deal with the charities rather than your personal tax affairs but they can then take up the matter with them. You can also ask them to notify your own tax district to amend your tax record (although they may ask you to do this directly). Have your National Insurance number to hand when you contact them (and if you have a tax reference (UTR) that may also be useful).

HMRC Charities can be contacted on: 0300 123 1073 (Monday to Friday: 8:30am to 4pm). You can also use webchat (see long link below) or write to:

Charities, Savings and International 2
HM Revenue and Customs
BX9 1BU
United Kingdom

The link for webchat is:

https://www.tax.service.gov.uk/ask-hmrc/webchat/charities-and-community-sports?_ga=2.106137027.1543212412.1600260491-1930798255.1589975136

Kevin Russell

September 16, 2020 1:06 PM
@Anna

Be advised though that contacting HMRC in this way could result in an enquiry into the charity or charities concerned if they have been incorrectly claiming Gift Aid when a donor has notified them that they are no longer eligible!

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