Gift Aid Tax Relief –An Insight

Gift Aid Tax Relief

Do you run a charity? If yes, you may have heard of gift aid. It is a government initiative to help charities like yours to reclaim tax. It is also applicable for community amateur sports clubs (CASCs). Suppose an individual who pays his taxes regularly is donating £100 to your charity. In such a case, the government will add £25 to that donation. This implies that your charity can now claim an extra £25 from the HMRC. If that individual is a higher-rate taxpayer, he can also claim some tax relief. However, it is necessary to have all the records of the donations. Now, isn’t this fascinating? So, it does not matter that whether you run a charity or not because it is time to know everything about this tax relief.

How to Claim Gift Aid Tax Relief?

Charities and community amateur sports clubs (CASCs) must be duly registered with the HMRC to claim for this tax relief. Next, donors have to complete an easy-to-fill form. It is known as the gift aid declaration form. This form is now often found on the websites of charities. It acts not just like an eligibility confirmation of the donor but also serves as a record that the charities have the donor’s written consent for reclaiming tax on his donation. It should not be left incomplete, or else, there can be several issues. The donor needs to write his name, address and a confirmation statement that he has paid or will pay sufficient income tax and CGT in the same tax year to cover the gift aid amount. Charities can also collect this information from their donors via phone or email. Meanwhile, it is mandatory for charities to keep a record of gift aid declaration forms for six consecutive years after their most recent claim of gift aid tax relief.

Benefits for Donors

While it is true that this tax relief primarily benefits charities, donors also enjoy some benefits that are as follows:

Increased impact: This increases the value of donations without any extra cost to the donor. To have this knowledge that their contribution is worth more is a satisfying feeling.

Tax relief: If the donor is a higher-rate taxpayer and is paying tax at a rate of 40%, he will become eligible to claim an additional tax relief on his donations. In fact, the donor can claim back 20% of his donation’s value.

Legacy Giving: Including Gift Aid in your will can enhance your legacy gifts. By ensuring your estate pays sufficient tax, charities can benefit even more from your generosity.

Benefits for Charities

For charities, gift aid tax relief has always been an important source of additional income because now every donation is worth 25% more. This gives a boost to their fundraising efforts. Also, they can improve their overall cash flow by claiming gift aid tax relief regularly and encourages more people to give donations.

Despite all these benefits, several misconceptions about gift aid still persist among the general public. The foremost among these are that the gift aid tax relief is only for large donations, and claiming the same is a complex process. Both of these are false as it is possible to claim 25% on cash donations of £30 or even less. However, one should remember that donations should never be made in return for tickets for any events, auctions, goods or services. Then, they will be not considered for the gift aid tax relief.

As a powerful tool that has the potential to significantly enhance the value of charitable donations, gift aid tax relief is a small step that can make a big difference. So, keep donating to causes that you care about.