Today is the United Nation’s International Day of Charity, so we thought we’d do a quick guide to tax relief when donating to charity. Most of us have heard of Gift Aid, but do you know how it actually works? And did you know that there are various other ways you can get tax relief on what you give? Let’s take a look:
The most common method of claiming back tax on donations is the government’s Gift Aid scheme. Through Gift Aid any charity you donate to can claim a further 25p for every £1 you give, directly from the government.
To donate through this scheme, you’ll normally need to complete a declaration confirming you’re a UK taxpayer. And remember, you must have paid enough tax to be able to tick ‘Yes’ to Gift Aid.
For basic rate taxpayers there’s nothing more to do, the additional 25p per pound is paid directly to the charity to top up your kind donation.
However, as a higher or additional rate taxpayer, did you know that you can personally claim a tax rebate for the difference between the rate of tax you pay and the basic rate on your donation?
If you donate £100 to charity, the Gift Aid Scheme will top this up to a £125 donation if you’re a UK taxpayer. As a higher rate taxpayer, you can claim back the extra 20% tax relief on this amount i.e. £125 x 20% = £25 back in your pocket. Or of course, you can donate this back to charity.
You’ll need to claim this back through your self-assessment tax return or by asking HMRC to alter your tax code.
Other ways to donate
Retail Gift Aid
If you’d like to donate goods to a charity rather than money, you may still get tax relief, including capital gains tax relief if applicable. For example, if you donate a pram to a local charity, then the charity may operate a Retail Gift Aid scheme. This means the shop acts as an agent and sells the goods on your behalf – once sold, the money received (net of their fee) will be classed as a cash donation and the charity will then provide you with a letter advising the value they sold it at. If you’ve completed the declaration for Gift Aid, they can claim the additional tax via the government. As with monetary donations, you can claim additional tax relief if you’re a higher or additional rate taxpayer.
Many employers are now operating Payroll Giving Schemes, meaning you can give to charity straight from your salary before tax, so you pay no income tax on the money you donate.
Donating through your business
And finally, you can donate money directly from your limited company. If you donate to a registered UK charity your company will claim Corporation Tax Relief on your donation, this donation however wouldn’t fall under the Gift Aid scheme.