Gift Aid for Charities: How to best handle gift aid

Running a charity is a noble yet often frustrating process. For those in the process of running a charity, getting all the help you can will be a common thought. For example, have you considered making the most of the Gift Aid scheme for charities? This service could be very useful for any charities looking to help expand their income.

If you want to make your charity as successful as it can be, then you should look closer at how Gift Aid could be of benefit to you.

What is gift aid?

Gift Aid is simply an income tax relief designed to benefit charities and Community Amateur Sports Clubs (CASCs). Typically, HMRC rules that you are able to claim 25p back on every £1 donated to your charity – or community amateur sports club (CASC). You must make sure you are recognised as a charity/CASC for tax purposes if claiming Gif Aid as a charity or CASC. Please also remember that you do not have to be fully registered with the Charity Commission to receive charitable status. Many charities, academies and sports clubs at amateur level fall into this category.

Typically, any payment made using gift aid will arrive within five weeks. However, any donor who chooses to put into Gift Aid will have to have paid at least as much in Income Tax or Capital Gains Tax in that tax year and make a Gift Aid declaration giving permission to claim.

How does gift aid for charities work?

The process itself, though, is relatively simple. A charity would be able to increase the value of all cash gifts from those who pay tax in the United Kingdom. This would be achieved by claiming back the basic rate of tax paid by the donor. This helps to increase donor valuations by as much as 25% - so it’s easy to see how valuable that could be.

Since this costs the donor nothing extra on top, there’s no real issue to worry about. For most charities, it’s important to consider as many opportunities as possible to expand your income. The more you have to work with, the more work your charity can get through.

Before you move any further, though, it’s important that you understand how you can use Gift Aid. Like all benefit systems that you could use to your advantage, there are some limitations that you need to consider. For example, as mentioned above, any money claimed on Gift Aid for charity will need to be under or match the same amount in tax paid by the donor.

Also, Gift Aid is not something that can be reclaimed on donations made by a company if they are made on behalf of someone else or done in exchange for a benefit to the donor/a connection. Keep that in mind, as it might limit or change the potential for claiming Gift Aid on some donations. All donations must be claimed on an individual basis – even a claim from Mr. and Mrs. Jones will be rejected. It must be singular – any kind of Gift Aid requests outside of that scope may be rejected.  

Things to consider

As ever, making the choice to use Gift Aid is one that you should take carefully. We recommend that you spend as much time as you can looking into the likelihood that you can benefit from Gift Aid. Since you can claim Gift Aid within four years of the end of the financial period you received the donation, you have ample time to work out what is and is not accurate.

Given that four-year timespan, it’s expected that records will be kept accurate in return. Everything from the donor to their name, address and date of donation should be kept clear. Improving record keeping should be one of the first things you do if you wish to start claiming Gift Aid. Since HMRC is likely to undertake a compliance visit to make sure you are living up to your end of the deal in terms of record keeping, it’s advised that you do so.

Some charities are happy to include things like ticket prices and entrance fees, even membership costs, in their Gift Aid declarations. While it might work, it’s easy to fall foul of the rather complex rules on this. Our suggestion would be that you get expert advice on each declaration if you fear it might become problematic for you.

For those higher or additional rate taxpayers, Gift Aid can be used to their advantage by putting the amount of Gift Aid claims on their tax return. If they do this, they are likely to receive a higher rate of tax relief. This means that if all income is taxed at source, they will eventually receive a tax rebate.

Lastly, specific parts of the Gift Aid process require specific forms of declaration in terms of the forms used. We suggest that you look closer at the official HMRC Gift Aid declaration forms, which can be found here.

Finding the right expertise for gift aid

As ever, if you would like to get more information about using Gift Aid for charities, then contact our team today. Our experience and knowledge of Gift Aid will ensure we help you to find the right choices. From helping you declare the right donations to helping you with any Gift Aid disputes, we’ll help you to find a solution at Devonshire Green.

The cost of getting the wrong Gift Aid setup can be quite significant. If you are unsure of anything, then please feel free to speak with us. We can arrange a consultation to better understand what will work for you in regards to using the Gift Aid scheme to your advantage.

Nick Bagga