Guide to Gift Aid
Gift Aid basics, what to prepare and making repayment claims with HMRC.
Gift Aid is the Government’s scheme for enabling churches and charities to reclaim tax paid on donations.
Tax paid on income, capital gains and savings all qualify and can be reclaimed on any donation from a UK taxpayer making a valid declaration.
Accurate record-keeping is essential for successful tax reclaims and should include donor details supported by a declaration, amounts and dates given. Always keep records even if you don’t hold a declaration. You may be able to claim retrospectively.
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Background to Gift Aid
Gift Aid is a generous UK Government scheme enabling charities to reclaim tax paid on donations. Personal taxes such as income tax paid on earnings and savings or capital gains tax all qualify for Gift Aid. Other types of taxes such as VAT and council tax do not.
Charities in general under use Gift Aid, although some sectors are very well organised with it, particularly large charities and churches.
Research by the Institute of Fundraising a few years ago suggested that up to £740 million was left on the chancellor’s table annually by charities which could potentially have claimed.
Gift Aid is a straightforward scheme which is easy to administer once the basic principles have been grasped.
Value of Gift Aid
Gift Aid is repaid by the Government at basic rate, an effective rate of reclaim of 25%.
Who can claim Gift Aid?
Only charities can claim Gift Aid.
Registration as a charity is often, but not always, required to demonstrate charitable status. More information on this is available in our guide to charitable status.
What can be Gift Aided?
A variety of fund raising sources qualify for Gift Aid, although in all cases the funds must have been received from individual UK taxpayers making suitable declarations allowing the reclaim.
Common sources are as follows:
- Monetary donations, any size
- ‘Donation only’ events
- Charity auctions
- Volunteer expenses
- Sale of goods on behalf of an individual
With anything other than a straightforward donation of money, it is important to read the rules on these measures to ensure compliance, particularly the section on HMRC’s website about what donations charities can claim on.
Gift Aid donors must:
- Be individual UK taxpayers. Donations from companies, for example, do not qualify.
- Pay enough tax to cover all their donations to charities in a tax year.
- Have made a Gift Aid declaration. See below for information on drawing up a declaration.
Gift Aid declarations
HMRC explains about declarations and shows model examples on it’s website. Envelope Systems has also agreed its own lighter version suitable for envelopes. This appears on all our Gift Aid envelopes.
HMRC allows charities to compose their own declarations. Below are the main points to bear in mind if you are contemplating this:
Show the beneficiary
A declaration that does not show the name of the church or charity to benefit is not valid for a Gift Aid repayment claim. It is important to bear this in mind if ordering untitled Gift Aid envelopes. Do make sure the charity name is added to the envelopes before they are displayed. This information can be stamped, typed, printed or handwritten, as long as it is on there.
Identify the donor
The whole system revolves around individual tax paying donors agreeing to Gift Aid their donations. It is therefore essential that this person can be identified, normally by giving full name and a minimum of house number and post code.
Give consent to reclaim
Gift Aid is a form of tax relief for the individual. It is therefore essential to have permission from that individual for the relief to be passed to the charity making a claim on that person’s donation.
Explain ‘repayment responsibility’ on the part of the donor
The most recent update to declaration wording simplified earlier models set out by HMRC. This was introduced in October 2015 and focused on the importance of the donor understanding that if insufficient tax has been paid on what he or she has given, it is the donor’s responsibility to repay any difference back to HMRC. When considering whether enough tax has been paid, there is also emphasis on ensuring the donor understands the need to take into account all donations in a tax year, 06 April to 05 April, not just the particular donation being made when they complete a declaration.
Signatures are not required to make a Gift Aid declaration valid and have no legal significance. The validity or not of a declaration is dependent upon the criteria above being fulfilled and on donor having paid sufficient tax to cover what is being reclaimed. The presence or not of a signature does not affect the requirement for the donor to repay any tax back to HMRC if an overclaim is found.
Full details of how to make a repayment claim appear via this link to HMRC’s website. Several third party companies also offer services for helping with this, including our own sister company, Fund Filer.
Most Gift Aid repayment claims are now made online. To reclaim Gift Aid this way, a charity needs to be registered with HMRC’s online service, Charities Online, whether the claim is being made direct or with a third party service. It is also still possible to claim by post using form ChR1, available from HMRC’s charities helpline.
The following points should help ensure a smooth experience when making a repayment claim:
Inaccurate claims will be returned unpaid.
Claim at least once a year
A charity should make at least one claim per accounting year. Maintaining a regular claiming pattern with evidence of recent activity should keep things smooth. Note that a charity’s accounting year may not coincide with the tax year end.
Ensure donations are ‘in date’
HMRC allows backdated claims for donations made in previous years. It allows charities to go back four accounting periods plus the current period. Interest is paid on past donations that have gone unclaimed, as long as they are ultimately claimed within the retrospective period allowed.
For some years, HMRC has allowed aggregating of small donations up to £10 for ease of form filling. Charities can aggregate donations with a combined value up to £1,000 per line on a Charities Online submission. However, aggregated donations still need to be backed up with valid declarations from UK taxpayers. This initiative is not to be confused with the Gift Aid Small Donations Scheme introduced in April 2013 – although it often is!
Gift Aid Small Donations Scheme
The Gift Aid Small Donations Scheme (GASDS) allows a charity to claim a ‘top up’ payment on small donations of up to £30, paid in cash or contactless, received without a Gift Aid declarations.
The combined value of these donations can be up to £8,000 per year, equivalent to an uplift of £2,000 each year, subject to Gift Aid also being reclaimed. Full details about the scheme appear on HMRC’s website.
where a charity operates from more than one location, for example a church benefice with several churches, a scheme within GASDS called ‘Community Buildings’ can be used to reclaim the GASDS top up for each building where donations are collected. There are extra rules associated with using the community buildings scheme, covered on HMRC’s website. A very helpful pdf download on making the most of GASDS is available via the Church of England’s website, www.parishresources.org.uk.
The decision whether to use Community Buildings or not depends upon where the charity normally receives its donations. Where collections are location specific, as with a church, it often works well. Where a charity potentially collects money anywhere, it might choose to keep with the basic GASDS scheme, which has less restrictions.
GASDS is not to be confused with aggregation, dealt with above – although it often is!
Useful HMRC forms
Gift Aid administration invariably comes with a need to know about various forms.