3 November 2010

Effective Charity Giving - I - Gift Aid

Many of us like to give to charities, so here are few ways to make sure that your giving is as effective as it can be. This article mainly covers Gift Aid, while a later one will cover other ways of giving, and giving by higher rate taxpayers. Just to be clear... when we talk about charities they have to be registered as such to gain tax benefits.

First of all it is worth identifying for yourself what charitable concerns you have. It is far more effective for a charity if you give a regular amount - and potentially support them in other ways as well - rather than drop a few coins into a collecting tin occasionally. Much as we would like to, none of us has the resources to support every charity there is.

One of the best ways to give to charity is also the simplest - Gift Aid. Your gift is treated as a net amount on which you have already paid basic rate tax. The charity is then able to reclaim that basic rate tax adding to the value of your donation. All you have to do is sign their form to say that you want to give in that way - and the form only has to be done once.

If you are a higher rate taxpayer (40%) or “additional rate” (50%) then you need to declare your gifts on your self-assessment tax return (or the P810 Tax Review form from HMRC if you don’t do a tax return), and the tax you have paid on that donation above the basic rate can be reclaimed by you.

Here’s an example: you give £10, the charity reclaims basic rate tax on that - an additional £2.50. And as a higher rate taxpayer you could reclaim an additional £2.50.

One thing to look out for with Gift Aid - you do need to make sure that you have paid enough tax in the year to cover the donation. That can be either Income Tax and/or Capital Gains Tax. Otherwise HMRC may ask you to make up any shortfall (the tax “rebates” they have paid out to your charities). If you haven’t paid enough in the current year then you can ask HMRC to carry back a donation as if it were paid in the previous tax year.

There is more detail on the HMRC website at: http://www.hmrc.gov.uk/individuals/giving/gift-aid.htm

If your employer operates a payroll giving scheme, you can achieve a similar result as Gift Aid. In this case, the donation is made gross (before any tax is deducted).

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