The Fizz! Blog

Made any big donations since 6 April?

We've written before about the Gift Aid box when you make a donation, what it means, and - amongst other things - why anyone with income that takes them into higher rates of tax should include the donation on their tax return.

Ordinarily, you'd just include donations made in the year in question on your tax return. In fact, there's an alternative option, which is to "carry them back" and include them on your tax return for the previous year, if you've not yet submitted it. Generally, it's not worth the hassle - if you're donating on a regular basis and your income doesn't vary wildly year-by-year, who cares if a £10 a month donation saves you tax this year or next year? It's not worth the hassle of keeping track of what's been carried back and making sure that you don't claim it again next time, and waiting to file your return at the last minute so as to carry back as many donations as possible.

However, this year there are likely to be a lot of people who made unusually large donations in the early part of the tax year, for obvious reasons. If you donated a one-off £1,000 in mid-April, say, as a higher-rate taxpayer you're going to get £250 knocked off your tax bill. So the amounts involved start to become a bit more interesting, and you might well consider carrying the donation back and sticking it on your 2019-20 return to save the tax early.

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Can I tick the Gift Aid box?

Generally, when you donate to a UK charity, there's a box on the form, asking if you want to donate through Gift Aid.  There's seldom any useful description or discussion of what that means, though, meaning people are often confused by it.

When you make a donation to a UK charity, you'll usually get tax relief on it.  What that means in practice is that, if you donate £80 and tick the Gift Aid box, the charity will go to HMRC and ask for another £20 (so, a quarter of the amount it's received from you).  That means that the charity's got £100, but you're only out of pocket by £80.  You've effectively donated £100 to the charity and have saved tax at 20%, which is the basic rate of tax (in England, Wales and Northern Ireland, anyway!).  If your income for the year ends up being enough to pay tax at 40%, or 60%, or 45%, you can save more tax on the donation by making a claim either on your Self Assessment Tax Return or via a letter or form, but for most people the process ends once the charity claims that initial bit of tax back.

When you tick that Gift Aid box on the form, you're promising that you're going to pay at least enough tax to HMRC that year to cover the tax that the various charities you donate to are going to reclaim from them.  So if you donate £1,100 in the year and tick the Gift Aid box every time, the charities are going to claim a further £275 back from HMRC, a quarter of the amount they've received from you, giving them £1,375 in total.  To tick the box, you're supposed to be confident you're going to be paying enough tax (either Income Tax or Capital Gains Tax) to cover the amounts that the charities will claim back.

So, what happens if you tick the box and don't end up paying enough tax?  If you're someone who has to submit Self Assessment Tax Returns, and you fill in the return correctly and honestly, HMRC will ask you to reimburse them for the top-up payments they've made to the charities.  So, if that person who donates £1,100 and ticks every box in sight winds up with no tax to pay, then via their tax return they'll have to pay £275 to HMRC.  That way, the charities are sitting on £1,375 and the donor is £1,375 down with no tax relief, which is how it's supposed to work.  And if you're someone who doesn't have to submit Self Assessment Tax Returns?  In honesty you're likely to get away with it - but really you shouldn't be ticking the box if you don't expect to pay tax equivalent to a quarter of the donations you make in a year.

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Charities - tin-rattling to become more attractive

If you're involved with the finances of a charity that receives donations, you might want to be aware of a change coming in April 2013.

At present, if a donor signs a Gift Aid declaration when making a donation (or signs one covering a range of donations) then the charity can claim some extra tax back from the goverment - 25% of the donation.  If there's no signed declaration, the charity can claim nothing.

From the next tax year, a charity with a good record of claims will be able to claim the extra 25% on up to £5,000 of donations as well, as long as all those donations unaccompanied by a declaration are under £20.  So, in effect, if you manage to collect £2,000 in collecting tins during the year, HMRC will give you another £500.  Every little helps etc.

Idiot-proof your charity's Gift Aid declarations

HMRC have updated their guidance about the wording of Gift Aid declarations – if you’re involved with the finances of a charity you should make sure your standard documents are up to date.

You’d think that confirming one’s a UK taxpayer would be a fairly simple matter, but evidently not – when ticking the box, some people supposedly don’t realise that a) you have to pay enough tax to coverall your donations, not just the one at hand at that instant, and b) that “tax” in this context means “income tax”.

So, the new recommended wording is:

“I confirm I have paid or will pay an amount of Income Tax and/or Capital Gains Tax for the current tax year (6 April to 5 April) that is at least equal to the amount of tax that all the charities and Community Amateur Sports Clubs (CASCs) that I donate to will reclaim on my gifts for the current tax year. I understand that other taxes such as VAT and Council Tax do not qualify. I understand the charity will reclaim 25p of tax on every £1 that I have given.”

To be honest, it would take a cold-hearted tax inspector having a really bad day to make a charity cough up tax repayments based on outdated wording.  But, for the sake of a minute or two’s work, you might as well make sure your charity’s getting it right!

More detail here:

http://www.hmrc.gov.uk/charities/gift_aid/declarations.htm

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