Tax Relief in United Kingdom When Giving To Charity Through Gift Aid Or Through Your Payslip
Tax relief when giving to charity through Gift Aid
Gift Aid increases the value of donations to UK charities and Community Amateur Sports Clubs (CASCs) by allowing them to reclaim basic rate tax on your gift. If you pay higher rate tax you can claim extra relief on your donations. If you claim age-related allowances or tax credits, Gift Aid donations can sometimes increase your entitlement.
How Gift Aid works
The Gift Aid scheme is for gifts of money by UK taxpayers. Charities or CASCs take your donation – which is money you’ve already paid tax on – and reclaim basic rate tax from HM Revenue & Customs (HMRC) on its ‘gross’ equivalent – the amount before basic rate tax was deducted.
Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it’s worth £12.50 to the charity. For donations between 6 April 2008 and 5 April 2011 the charity or CASC will also get a separate government supplement of 3p on every pound you give.
How to make a donation using Gift Aid
In order to make a Gift Aid donation you’ll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form – one form can cover every gift made to the same charity or CASC for whatever period you choose and can cover gifts you have already made and/or gifts you may make in the future.
Gifts made jointly by people living together
You can use Gift Aid for gifts you make jointly if you tell the charity or CASC how much each of you is giving and if you each make a Gift Aid declaration.
Making sure you’ve paid enough tax to use Gift Aid
You can use Gift Aid if the amount of Income Tax and/or Capital Gains Tax you’ve paid in the tax year (6 April one year to 5 April the next) in which your donation is made is at least equal to the amount of basic rate tax the charity or CASC is reclaiming on your gift. If you make a number of donations you will need to consider the tax you’ve paid on each donation on an accumulative basis.
You don’t necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you’ve paid could include:
- tax deducted at source from savings interest
- tax on State Pension and/or other pensions
- tax on investment or rental income
- Capital Gains Tax on gains
But only UK tax counts, so if you only pay tax outside the UK you won’t be able to use Gift Aid.
How to check if you’ve paid enough tax
To work out if you’ve paid enough tax to cover your donations, divide the donation value by four. For example, if you give £100 in a particular tax year you will need to have paid £25 tax over that period. (£100/4 = £25). (Note that this calculation is based on the basic rate tax of 20 per cent.)
If you don’t think you’ve paid enough tax this year, you may be able to backdate your donation. See the later section ‘Backdating Gift Aid donations to the previous tax year’. If you make a Gift Aid donation(s) and have not paid enough tax you may have to pay the shortfall to HMRC.
Claiming back higher rate tax
If you pay higher rate tax, you can claim the difference between the higher rate of tax (40 per cent) and the basic rate of tax (20 per cent) on the total (gross) value of your donation to the charity or CASC.
For example, if you donate £100, the total value of your donation to the charity is £125 – so you can claim back 20 per cent of this (£25) for yourself. You can make this claim on your Self Assessment tax return if you were sent one.
For more information see section below ‘Telling HMRC about your Gift Aid donations’.
Backdating Gift Aid donations to the previous tax year
You can ask for Gift Aid donations to be treated as being paid in the previous tax year if you paid enough tax that year to cover both any Gift Aid gifts you made that year and the ones you want to backdate.
Your request to backdate the donation (and claim higher rate relief if applicable) must be made before or at the same time as you complete your Self Assessment tax return for the previous year and no later than the filing deadline for the tax return, which is 31 October if you file a paper tax return, or 31 January if you file online.
If you don’t complete a tax return you can ask your Tax Office to send you a form P810 Tax Review – you must send this by no later than 31 January after the end of the tax year to which you wish to backdate your gift.
Example
Mr Jones makes a Gift Aid donation of £1,000 on 1 June 2009. He can either treat the donation as being for this tax year (2009-10) or carry back the relief to last tax year (2008-2009). As he paid enough tax last year to cover both last year’s donations and this one, he chooses to carry the relief back. He hasn’t yet completed a tax return for 2008-09 so he makes his claim on that return and files it online before 31 January 2010.
But if Mr Jones had already sent back his tax return for 2008-09, he would only be able to ask for the donation to be treated as Gift Aid for the year 2009-2010. You can’t change a tax return in order to carry back a donation.
Gift Aid – effect on age-related Personal Allowance, age-related Married Couple’s Allowance or tax credit claims
If you claim the age-related Personal Allowance or Married Couple’s Allowance or tax credits it’s important to let HMRC know about any Gift Aid donations. They will subtract the amount you donate plus the basic rate tax from your total income and use the reduced figure to work out the value of your allowances or tax credits.
This may have the effect of increasing these allowances or credits if your income was above the relevant ‘income limit’ that applies.
Telling HMRC about your Gift Aid donations
It’s important to keep a record of the total amount of your Gift Aid donations for each tax year. You’ll need to let HMRC know about your Gift Aid donations if:
- you claim age-related Personal Allowance, Married Couple’s Allowance or tax credits
- you pay higher rate tax
- you want to backdate a Gift Aid donation
If you normally complete a tax return you can tell HMRC about your Gift Aid donations by completing the section on Gift Aid payments.
If you don’t complete a return, you can give the details on form P810 Tax Review – available from your Tax Office, or telephone your Tax Office and ask them to make a change to your tax code.
Donating tax refunds to charity through your tax return
If you complete a tax return and are due a refund you can ask HMRC to treat all or part of it as a Gift Aid donation. Follow the link below to find out more. This can’t be carried back to earlier periods.
Tax relief when giving to charity through your payslip
If you pay tax through PAYE (Pay As You Earn), Payroll Giving offers a simple way to reduce the cost to you of making regular gifts to UK charities. It allows you to authorise your employer or company/personal pension payer to make the donation from your wages or pension before deducting any tax.
How Payroll Giving works
Payroll Giving allows you to make donations to charity directly from your pay or company/personal pension. The donations are made before Income Tax is worked out and deducted. Because of this, you only pay tax on what’s left.
This means that you get tax relief on your donation immediately – and at your highest rate of tax.
Example – basic rate tax and Payroll Giving
You pay tax at the basic rate of 20 per cent, and authorise a monthly donation of £10. That means you save £2 tax (20 per cent of £10). The actual cost of the donation to you is £8.
Example – higher rate tax and Payroll Giving
You pay tax at the higher rate of 40 per cent and authorise a monthly donation of £10. That means you save £4 (40 per cent of £10). The actual cost of the donation to you is £6.
Who can use Payroll Giving?
You can use Payroll Giving as long as both of the following apply:
- you are an employee or you get a company/personal pension and your employer or pension payer deducts tax through the PAYE system
- your employer or pension payer operates a Payroll Giving scheme
If your employer or pension payer does not operate a Payroll Giving scheme, you could ask if they would be willing to start one. They can find out about Payroll Giving schemes and contact details for Payroll Giving agencies on the HM Revenue & Customs (HMRC) website.
How to make a donation using Payroll Giving
You can make a donation by authorising your employer or pension payer to deduct a set amount from your salary or pension income.
Your employer or pension payer hands over your gift to a government approved Payroll Giving agency, which then passes the money on to your chosen charity. You do not have to tell your employer or pension payer which charities you support. Instead you complete a simple form for the Payroll Giving agency to tell them where they should send your donations.
Some Payroll Giving agencies can provide you with a charity card or cheque book so that you can make gifts directly to any charity whenever you want to.
Once a gift has been deducted from your pay or pension no refund is possible. Some agencies may charge a small fee, which is deducted from your donation, to cover administrative costs.
Payroll Giving and other gifts to charity
Payroll Giving does not affect any other donations you might want to make to charity. You can, for example, make other donations using Gift Aid if you wish.
