Giving to Charities
August 2006
Gift Aid donations increase the cash benefit to charities by enabling them to recover the deemed standard rate tax that you certify you have deducted before making the gift. For instance if you make a donation of £10 the charity can recover a further £2.82 from the Revenue. This effectively increases the charity's income by 28.2%.
The tax effect for the donor depends on your highest rate of tax paid:
40% rate taxpayers
As you pay the donation net of the standard rate tax charge, you can claim an additional £2.31 for every £10 of donation made.
Standard Rate taxpayers
There is no additional benefit for standard rate taxpayers as they are deemed to have deducted the standard rate tax charge before making the donation.
Individuals who pay no tax
When making a gift aid donation you assert that you will pay standard rate tax on the equivalent amount of income. If it transpires that you pay no tax then you are required to refund the notional standard rate tax. In the example above based on a net donation of £10 you will need to repay £2.82.
Backdating donations
One further point regarding the date of payment and the tax year you can claim a deduction.
You are allowed to include in your tax return all payments made after the end of the tax year, up to the earlier of:
- the following 31 January, or
- the date on which you file your return.
This can be significant for taxpayers who realise that in the current year they will not pay higher rate tax, whereas in the past year they did pay tax at 40%. By carrying the appropriate gift aid payments back higher rate marginal tax at 23% can be recovered. Without the carry back this benefit would be lost.
Please keep a record of all the gift aid payments that you make. We can only make a claim on your tax return if we are advised.
