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

How to check if you have paid enough tax to support your Gift Aid donations.

Photo of Rachel Steeden Rachel Steeden
5 min

Ticking the ‘Gift Aid’ box will boost your charitable donation by 25p for every £1 you give.  In addition, if you’re a higher or additional rate taxpayer, you can personally reclaim another 25p or 31.25p for every £1 you give.

However, as the wording of the Gift Aid declaration reminds us, you must pay enough income or capital gains tax in each tax year (6 April to 5 April following) to equal or exceed the Gift Aid that your chosen charities reclaim on your Gift Aided donations.  In summary, the charity can’t reclaim tax which you haven’t paid.  If a charity claims more Gift Aid than you’ve paid income and capital gains tax, you may receive a bill from HMRC for the difference.

So how do you know if you’ve paid enough tax to cover your Gift Aid?

The Tax and Gift Aid landscape

Only 65% of UK adults paid income tax in 2023-2024.

Why is this? Some of the reasons include:

Everyone has a ‘personal allowance’, which is an amount of income that a person can receive before actually being liable to pay a penny of tax. In 2023-2024, this was £12,570.

  • In addition, everyone has a tax-free trading allowance for gross income of up to £1,000 which is designed to cover ‘side-hustles’ such as babysitting or online reselling.
  • Pension contributions can act to further reduce taxable income.
  • Investment income can be tax free if earned within an Individual Savings Account (ISA).
  • The first £1,000 of dividend income is not taxed.
  • You have a personal savings allowance of £1,000 if you’re a basic rate taxpayer, £500 if you’re a higher rate taxpayer or £0 if you’re an additional rate taxpayer.  In addition, if your other income is less than £17,570, you may be able to receive up to £5,000 of interest without paying tax..
  • The Rent a Room Scheme allows an individual to earn up to £7,500 per year tax-free from hosting a lodger.

Working through a Gift Aid Example

Mary earns £280 per week (£14,560 p.a.) from her part-time job. She gives 10% of her gross earnings into a Stewardship Giving Account. She has also authorised her employer to deduct 15% of pre-tax earnings to be paid into her workplace 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 2023/24?

    Weekly Average (£) Annual (£)
Earnings   280.00 14,560
Interest income from Mary’s ISA   2.50 130
Dividend income   16.23 844
Bank interest   0.50 26
Gross income   £299.23 £15,560
       
Pension contributions   42.00 2,184
Gift Aid donations   28.00 1,456
       
Net cash after pension contributions and gifts to charity   £229.23 £11,920

Gift Aid donations are deemed to be paid after Mary has ‘deducted’ basic rate tax, which is 25p for each £1 of donation made (equivalent to the 20% basic rate of tax on the gross donation of £1.25). This means Mary is treated as having made Gift Aid donations of £1,820, having ‘deducted’ £364 of tax and paid the balance, £1,456 to Stewardship. In signing her Gift Aid declaration to Stewardship, Mary has effectively said that she will have paid at least £364 in income or capital gains tax and authorised Stewardship to reclaim that £364 from HMRC for charitable use.

But has she paid enough tax?

Let’s see…

      Annual
Earnings     14,560
Add: ISA income  Tax exempt   0
Add: Dividend income paid gross  Under £1,000   0
Add: Bank interest paid gross  Under £1,000    0
Less: Pension contributions     2,184
Taxable earnings before personal allowance     £12,376
Personal allowance     12,570
Income subject to tax taxable earnings all within personal allowance     £Nil
       
Income tax at 20%     £0
       
Tax reconciliation:      
Tax paid under PAYE     0.00
Tax deducted from Gift Aid donations, reclaimed by Stewardship     364.00
Shortfall in tax paid     £364.00

Mary earns £14,560 per year and additionally has investment income of £1,000. Her average weekly income is nearly £300 per week (£15,560 per year) and she reckons that with a personal allowance of £12,570, she has scope to make Gift Aid donations of over £3,000, well in excess of her donations of £1,456. But, it can be seen above that Mary has not paid any income tax at all and therefore, now owes HMRC £364.00 for the year.

Action Points

If your taxable income (taking account of any unearned income that is nevertheless taxable) is close to the level of the personal allowance, you should be considering whether you have paid enough tax to support your Gift Aid donations, using the example above or the HMRC income tax calculator as a guide. If you pay PAYE tax, your payslip can give you an idea of how much tax you are paying. Bear in mind though that the tax on your payslip may not be the whole tax picture for the year and, if you are repaid some of it after the end of the year, this also needs to be taken into account in your Gift Aid calculation.

If you find that you haven’t paid enough tax, you should immediately notify the charities that you have supported. 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 in relation to donations already made, as it is your responsibility as donor to make up any shortfall). You can however ask them to claim a lower level of Gift Aid on future donations not yet made.

If your charitable gift was made from a bank account held jointly with your spouse and your spouse has made a Gift Aid declaration and paid enough income or capital gains tax to cover the Gift Aid reclaimed, you could ask the charity to treat the gift as having come from your spouse instead. 

Use a Giving Account to organise all of your giving

The Stewardship Giving Account makes it easy to keep track of how much Gift Aid has been reclaimed on your giving so that you don’t end up with a surprise tax bill from HMRC.  If you’re married, you could add your spouse as an account user, so that you can manage your giving together regardless of whose tax bill covers the Gift Aid.  

 

Profile image of Rachel Steeden
Written by

Rachel Steeden

Rachel is a solicitor with 17 years’ experience advising private clients and charities. She enjoys working closely with clients and their advisers to help donors make complex gifts effectively and tax-efficiently.

She is a member of the Charity Law Association, STEP Special Interest Group for Philanthropy, Lawyers in Charities and Lawyers’ Christian Fellowship.

Rachel and her husband Derek lead a Bible study group at their church in central London.

They’re passionate about Church Planting in the UK and overseas, Bible translation and The Local Church.