Gift Aid is a scheme available to charities and Community Amateur Sports Clubs (CASCs). Under this scheme, charities can claim an extra 25p for every £1 donated, allowing you to support the causes you care about even more.
What Are the Tax Benefits for the Donor?
Basic Rate Taxpayers (20%)
If you pay tax to HMRC and are a basic rate taxpayer (income between £12,571 and £50,270), the Gift Aid benefit goes to the charity, not to you. Instead of HMRC keeping the tax you have paid, it is transferred to the charity. You do not receive any personal tax benefit.
Non-Taxpayers
If your income is below £12,570 or you have not paid any tax for other reasons, you should NOT make Gift Aid donations. If you do, HMRC will require you to repay the tax amount that was transferred to the charity on your behalf.
Higher Rate Taxpayers (40%)
If you pay tax at 40% (income between £50,271 and £125,140), you personally benefit from Gift Aid, in addition to the charity receiving the extra 25%.
What Is the Tax Benefit for Higher Rate Taxpayers? How Does It Work? How Can You Claim It?
Gift Aid assumes that all donations are made from pre-tax income at 20%. However, higher-rate taxpayers pay an additional 20% tax, meaning they can claim back the extra 20% of their Gift Aid donations on their tax return.
How It Works:
- HMRC increases your basic rate tax threshold by the amount of your Gift Aid donations.
- This results in a tax refund of 20% on your donations.
- This mechanism reduces your taxable income, encouraging higher-rate taxpayers to donate more, as they can offset their tax while supporting charities.
Record Keeping
If you make Gift Aid donations, it is important to keep proper records in case HMRC requests evidence for tax relief claims.
What to Keep:
- Donation Receipts
- Receipts or acknowledgements from the charity confirming your donation.
- Many charities send an annual summary of your donations.
- Gift Aid Declaration
- A copy of the Gift Aid declaration you signed (or confirmation from the charity).
- This confirms that you have agreed for Gift Aid to be claimed on your donations.
- Bank Statements or Payment Records
- Bank statements, credit card statements, or PayPal records showing payments to the charity.
- These should match the donation amounts you claim.
How Long Should You Keep These Records?
- HMRC recommends keeping records for at least four years after the end of the tax year in which the donation was made.
- If you are self-employed, keep records for at least five years after the 31 January filing deadline for that tax year.
Carrying Back Gift Aid Donations
In some cases, Gift Aid donations can be carried back and treated as if they were made in the previous tax year.
This can be useful if:
- You were a higher-rate taxpayer in the previous tax year but are now a basic-rate taxpayer.
- You did not pay enough tax in the current tax year but did in the previous year.
⚠️ Important: If you carry back a donation, you must carry back the full amount of that donation.
Example: How Carrying Back Gift Aid Works
Mr Purple was a higher-rate taxpayer in 2023/24. In 2024/25, he decided to reduce his working hours to spend more time with his grandchildren, making him a basic-rate taxpayer.
On 15 June 2024 (in the 2024/25 tax year), Mr Purple donates £1,000 to UNICEF under Gift Aid. The charity claims 25% tax relief, increasing his donation to £1,250.
Since Mr Purple paid 40% tax in 2023/24, he can carry back the donation to his 2023/24 tax return, due by 31 January 2025. This will trigger a tax refund of £125 (the difference between the 20% tax relief already applied and the 40% tax rate he paid in 2023/24).
Important Deadlines for Carry Back Claims:
- Mr Purple must submit his 2023/24 tax return by 31 January 2025.
- If he forgets to include his 15 June 2024 donation in his 2023/24 tax return before the deadline, he cannot amend the return later to claim the refund.
- Similarly, no carry-back claims can be made for any other donations made in 2024/25 after 31 January 2025.
