Gift Aid: What it is and how to claim

What is Gift Aid?

The principle behind Gift Aid is that individuals should not be taxed on income or gains that they donate to charity.

Requiring individuals to claim repayments of tax because of donations to charity would place an administrative burden on both taxpayers and the tax authorities, so rather than requiring individuals to claim repayments of tax as a result of donations to charity, the charity to which the money is donated can claim the repayment instead. This is Gift Aid.

Suppose that an individual donates £100 to a charity. The basic rate of income tax is 20%, and so the individual is treated as making a ‘gross’ donation of £125. The charity can claim £25 (i.e. £125 × 20%) from HMRC by way of Gift Aid.

Note that both the charity and the individual are in the same position as they would have been if a donation of £125 had been made to the charity, and the individual had been able to claim the tax refund of £25 themselves. In both cases, the charity receives £125, and in both cases the net cost to the individual is £100.

Higher-rate and additional-rate taxpayers can claim additional tax relief for their donations to charity through their self-assessment tax returns.

How to claim

There are a number of conditions that must be satisfied before a charity is able to claim Gift Aid on its donations, the most important of which are:

• The gift must be of money, and must be made by an individual (it is not possible for a charity to claim Gift Aid on donations by companies, for example).
• The donation must be a genuine gift and must not be subject to any condition as to repayment.
• The value of any benefits received by the donor in consequence of making the gift must be within certain limits. This can be a difficult area in practice.
• The individual making the donation must provide a Gift Aid declaration to the charity in relation to the gift. For all donations on which charities claim Gift Aid, the charity is expected to be able to identify the relevant credit to their bank account and Gift Aid declaration, and to maintain an audit trail between them.

A separate Gift Aid Small Donations Scheme (GASDS) exists, which enables charities to claim an amount equivalent to Gift Aid on cash donations of £30 or less, without the need for a Gift Aid declaration, although the amount that can be claimed under the GASDS is capped at £2,000 per annum (there is no limit on the amount that a charity can claim under Gift Aid each year).

It is not possible to claim for Gift Aid and under the GASDS for the same donation.

Charities can use intermediaries, such as JustGiving, to collect Gift Aid on their behalf. Charities that wish to claim Gift Aid or the GASDS themselves will need to register for Gift Aid by adding Charities Online to their HMRC online account. They can then either use bespoke software to assist them with the claim process, or make the claim by completing a spreadsheet, which can be downloaded from HMRC’s website, and which, on completion, is uploaded onto their Charities Online account with HMRC. The spreadsheet will contain details of each donor and the amount of their donations (taken from the relevant Gift Aid declarations).

For GASDS claims, only the total amount of donations received under the GASDS needs to be provided.

HMRC aims to make the Gift Aid and GASDS payments within four weeks of the claim being made.

Charitable trusts must claim Gift Aid within four years of the end of the tax year in which the donation is received. Incorporated charities must claim Gift Aid within four years of the end of the accounting period in which the donation is made.

Claims under the GASDS must be made within two years of the end of the tax year in which the donations were collected.

Charities must retain records in support of their Gift Aid claims for six years from the end of the tax year (for trusts) or financial year (for incorporated charities) in which the donations were made.

The above provides a high-level overview of Gift Aid and the claim process. In a future blog, we’ll take a look at some of the common errors and pitfalls that charities encounter when making Gift Aid claims.

Need help?

Gift Aid can be an effective way to boost charitable income, but it’s essential to get the process right to avoid delays or lost claims. Whether you need help registering, making claims, or ensuring you meet HMRC’s requirements, our team can guide you through every step.

Get in touch with your usual Larking Gowen contact, email enquiry@larking-gowen.co.uk, or call 0330 024 0888.

Andrew Robinson