McDade Roberts offer our clients advice and support on a whole host of financial topics including the implications and benefits of giving to charity. Read on for a quick guide.
We consider below the options available for individuals considering making tax-effective gifts to charity. Individuals can get tax relief on gifts to UK charities:
- under Gift Aid
- through a Payroll Giving scheme
- by making a gift of certain shares or land.
Gift Aid
Gift Aid is the main vehicle for tax efficient giving to charities. It can apply to any donation whether large or small, regular or one-off.
Making a payment under Gift Aid allows donors to ensure that their chosen charities can reclaim the basic rate of income tax on all their donations, equal to 25% of the amount donated.
As an added boost for donors, higher rate taxpayers can claim for themselves the difference between basic and higher (currently 20%) or additional (currently 25%) rates of tax against their own income tax liabilities, reducing further the net cost of the donation. This relief may be used to reduce the tax payable for the previous tax year if the donation has been made before the tax return for the previous year has been submitted to HMRC.
Example
Gift to charity £1,000
Charity reclaims tax £250
Total value of gift £1,250
Tax reduction for higher rate taxpayer £250 and for additional rate taxpayer is £312.50.
So a gift worth £1,250 to the charity could cost as little as £687.50.
How Does A Gift Qualify For Gift Aid?
The taxpayer must:
- make a declaration to the charity that the gift is to be treated as a Gift Aid donation
- pay at least as much tax as the charities will reclaim on the gifts in the tax year in which the gifts are made
- not receive excessive benefits in return for the gift.
Making A Declaration
The declaration is the charity's authority to reclaim tax from HMRC on the gift. The declaration can be in writing or orally but, usually, the charity will provide a written declaration form.
In order to make a Gift Aid donation, the individual needs to make a Gift Aid declaration. The charity will normally ask the individual to complete a simple form – one form can cover every gift made to the same charity or CASC for whatever period, and can cover gifts the individual has already made (backdating the claim for up to four years) and/or gifts made in the future.
Gift Aid Donor Benefit Rules
From 6 April 2019 the donor benefit rules that apply to charities that claim Gift Aid are simplified. The previous mix of monetary and percentage thresholds have been replaced by two percentage thresholds:
- the benefit threshold for the first £100 of the donation remains at 25% of the amount of the donation
- for larger donations, charities can offer an additional benefit to donors up to 5% of the amount of the donation that exceeds £100.
There is an overriding limit on the value of benefits received by a donor in a tax year as a consequence of donations to a charity, which is £2,500.
Taxpayers can pay membership subscriptions to a charity through Gift Aid, provided any membership benefits received do not exceed certain limits. However, disregard free or reduced entry to view any property preserved, maintained, kept or created by a charity in relation to their charitable work.
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Charities Online
Charities Online allows Gift Aid repayments to be claimed online. The system is designed to speed up and simplify the process of making a repayment claim, saving valuable time for charities and CASCs.
There are three options for making claims. Option one is for charities that file Gift Aid claims for fewer than 1,000 donations. Option two is for larger charities that make claims for over 1,000 donors, while option three applies to those few charities that do not have the internet and involves completing a ChR1 paper form.
HMRC aims to repay amounts claimed via Charities Online within 20 working days. There are built-in checks to detect errors in the process before the form is sent.
There are many complex accounting and reporting requirements governing charities and not-for-profit organisations. Whatever the nature of your organisation, we can help you to meet its objectives. Please contact us for more information.
Payroll Giving
This scheme allows an individual to make gross donations to charity (deducted from salary before tax is calculated). There is no statutory minimum or maximum limit, although individual schemes may impose a lower monthly donation limit.
Example
Gift from gross pay £50
Charity receives £50
Actual cost to basic rate taxpayer £40
Actual cost to higher rate taxpayer £30
Actual cost to additional rate taxpayer £27.50
Gifts In Kind
Gifts of certain shares and securities, land and buildings to a charity attract income tax relief as well as capital gains tax (CGT) relief.
Example
Gift of shares valued at £1,000
Income tax saving basic rate taxpayer £200 higher rate taxpayer £400 additional rate taxpayer £450
Potential CGT saving basic rate taxpayer £100 higher or additional rate taxpayer £200 There is a similar corporation tax relief for gifts by companies.
If you would like to discuss your plans for giving to charity, please give McDade Roberts Accountants a call. We help our clients with all aspects of finance and the first consultation is free so you have nothing to lose.