Gift aid is a tax relief that is available to both donor and charity.
A donor must donate to a charity, (established for charitable purposes); in the UK, EU, Norway, Iceland and Liechtenstein and must not receive significant benefits in return for the donation.
The charity must be registered with the Charity Commission and recognised by HMRC.
The charity must keep records of who has donated in order to claim Gift Aid relief – this means that they can reclaim the basic rate of income tax on the donated sum.
The donation is effectively grossed up by the basic rate of tax. The basic rate limit of the donor is then increased by the amount of the gross payment.
This means that higher and additional rate tax payers do not pay higher or additional rate tax on the donation and claim the relief in their self-assessment tax returns.
For charities they can also use the Gift Aid Small Donations Scheme (GASDS) – which allows a claim in relation to small donations of up to £30 (subject to a £8,000 cap per annum) without a declaration from the donor.
Pay roll giving
Tax relief is given at source on regular charitable donations form gross pay or pension. The donation is taken from salary before income tax is applied.
Charities cannot claim Gift Aid as no tax has been deducted on the sum gifted.
It pays to keep good records if you are giving monies to charity and wish to claim gift aid – this will allow you to support your claim for tax relief without relying on asking the Charity for supporting information.
Payroll giving is of itself a record.