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FAQ: What is Gift Aid and how does it work?

7 key questions answered

Photo of Kevin Russell Kevin Russell
5 min

Gift Aid is big business and good news. It is worth over £1 billion to charities each year, providing a valuable income stream to charities large and small, including those supported by you!

What is Gift Aid?

The Gift Aid scheme allows a UK charity to claim back the tax that you pay, as a donor, when you earn the money from which you make the donation. Eligible donations from UK taxpayers attract Gift Aid at a rate calculated in accordance with the basic rate of income tax. So with basic rate income tax at 20%, an eligible £10.00 gift from a UK taxpaying donor is worth £12.50 in the hands of a charity after Gift Aid is reclaimed.

So, you earn £12.50 of taxable income and pay 20% in income tax (£2.50). You give £10.00 to a charity, and the £2.50 of tax that you have paid is refunded to the Charity by HMRC under the scheme.

Whilst generally straightforward, what are the key questions for donors to understand when using the scheme?

1. Am I a UK taxpayer?

More than half of the adult population in the UK are not taxpayers for the purposes of Gift Aid. For a charity to be able to claim Gift Aid on a donation, the donor must have paid tax (that is generally income tax but does also include capital gains tax) at least equal to the amount of the Gift Aid claim submitted by the charities that you support. VAT, council tax and other taxes do not count!

Warning: If you pay less tax than that claimed back by the charities that you support, you (the donor) are liable to make up the shortfall to HMRC.

2. Can I support more than one charity?

You can directly support as many UK charities as you wish using the scheme so long as:

  • Generally, you complete a declaration form (see later) for each charity that claims Gift Aid on your donations;
  • The total Gift Aid reclaimed by all the charities that you support does not exceed the total tax that you have paid (see earlier warning).

3. Is my donation eligible?

To be eligible for Gift Aid, donations must be freewill gifts from your own funds. The following are not eligible:

  • Donations made in return for tickets (e.g. raffle, events, cake sales and auctions);
  • Donations made on behalf of someone else or a group of people (unless a sponsored event or a collection made at a funeral);
  • Donations made of behalf of a company;
  • Donations made where you, or a close family member, receive any benefit as a result of your donation (unless it falls within the small (or ‘de-minimis’) benefits limit).

4. What about donations of goods to charity shops?

If you pay sufficient UK tax (as stated above) you can also Gift Aid donations of goods to a charity shop. However, as Gift Aid is about gifts of money rather than goods, Retail Gift Aid (RGA) works in a slightly different way. There are three different forms of RGA scheme but all achieve the same objective. The goods are sold on your behalf so that the net cash proceeds then become a gift of money by you to the charity under the Scheme. You must complete a Gift Aid declaration and, depending on the specific RGA scheme adopted, the charity may write to you to tell you how much has been raised and can be Gift Aided. For more details of the exact communications the shop may send you can be found here. Provided that you agree to donate the net proceeds, the charity will be able to reclaim tax on your gift from HMRC in the normal way.

5. What paperwork do I need to complete?

For each charity that you directly support, you will need to complete a Gift Aid declaration form. This form will be provided to you by the charity and should be retained by them (you may want to keep a copy). Often, these forms are worded to cover all future gifts that you make to that charity. Where this is the case, and if you no longer wish a charity to claim Gift Aid on your donations, you must inform them.

Remember, if you have not paid enough tax and the charity continues to claim Gift Aid, you will be liable for any shortfall.

6. Can a charity claim more if I am a higher rate taxpayer?

No. The scheme is based solely on basic rate income tax. However, as a higher rate (or, additional rate) taxpayer, there may be an further tax repayment that you can claim as a donor. HMRC guidance can be found here.

7. What records should I keep?

HMRC states that donors should keep records of donations in a number of situations. This applies to higher rate taxpayers or others needing to submit a tax return, people claiming tax credits and those claiming higher personal allowances or claiming a married couple’s allowance. The guidance suggests that you keep records showing the date, the amount and the name of the charity donated to.

Even where you are not claiming tax back we strongly suggest that you keep record of:

  • All active Gift Aid declarations;
  • Any correspondence with charities, particularly where you have instructed them to no longer claim Gift Aid on your donations;
  • Donations made:
    • Date
    • Recipient
    • Donation

These records will be important in the event of any HMRC enquiries.

The Gift Aid scheme has been a great benefit to many charities over the years. With a little understanding and some basic record keeping, donors can make the fullest use of the scheme possible.

The Stewardship Giving Account can help you with Gift Aid

Stewardship’s Instant Gift Aid feature means we boost your support by 25% at the point of donation on all eligible gifts. This means the causes you support receive the boost instantly and without having to claim it from HMRC themselves. Saving them time and admin hassle.

You can toggle whether you want to include Gift Aid on each individual gift because you may be approaching the threshold of your Gift Aid allowance and want the flexibility to continue giving without it. 

You can also view all your gift history and the amount of Gift Aid claimed in one easy to read report.

If you would like to start using a Giving Account start here and you’ll be giving in a better way in no time at all.

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Written by

Kevin Russell

Kevin is a technical expert with over 25 years of experience of helping churches and Christian charities maximise their potential. His knowledge is sought not only by charitable organisations but by Government, the Charity Commission and HMRC.

Prior to working for Stewardship, Kevin had a wide range of business, charity and teaching experience and is a qualified chartered accountant, and a chartered tax advisor. 

Kevin and his wife Carol have 3 adult children and one grandchild.  They attend Grace Church, Highlands in North London. Causes close to Kevin and Carol’s hearts are those working directly with the homeless, with drug addicts, and women in prostitution. Organisations working in evangelism amongst young people, in family life and demonstrating Christian love in action in the public sphere.

 

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