Gift Aid: 4 Own Goals to Avoid

There’s no doubt that Gift Aid is good for charities. But it’s also an area where close attention to the rules matters. 

Not Enough Tax in the Tax Year in Which a Donation is Made. 

Gift Aid allows a charity to claim back the basic rate tax that you have paid on your donation, so your chosen charity ends up with a bigger gift. 

Always check you will pay enough tax – income tax or capital gains tax – in the tax year you make the donation, to cover the amount reclaimed by the charity. As a rule of thumb, donations should qualify if they’re not more than four times what you have  paid in tax during the year. 

Unclaimed Additional Tax Relief. 

If you pay tax at more than basic rate, you can reclaim the difference between this and basic rate on the donation.

Lost Paperwork.

Don’t throw away the paperwork. It’s important to keep records of all Gift Aid donations in order to substantiate claims for higher rates of relief. 

Mistakes With the Small Print.

Higher rate tax relief is usually given in the tax year in which you make the donation. This in itself can be a useful tax planning tool.

But it may be possible to elect to have a Gift Aid donation treated as if made in the previous tax year. This can be a plus if you want to speed up tax relief or paid higher rates of tax in the previous year. To carry back a donation made between 6 April 2022 and 31 January 2023 against 2021/22 income, the election would be made on the 2021/22 tax return, for which the final filing deadline is 31 January 2023. 

The election can’t be made on an amended return, and, once an election has been made, it cannot be amended. A further point is that carry back elections can’t be used to part of a gift: they must be used for the whole sum.

For a discussion of charitable giving and the implications for tax, please contact us.