Gift Aid Lowdown
For a charity or for those fundraising for charities, gift aid can supercharge your overall income. That’s why it’s pretty shocking that UK charities are losing out on a potential £600 million every year, just by not claiming gift aid!
But what does gift aid mean?
Many donors and fundraisers just don’t really get how gift aid works, or the importance of ticking that little box.
We’re breaking down all the basics, along with gift aid rules and regulations and the many different aspects of charitable giving that gift aid can benefit.
Enjoy this gift aid low down and help us achieve our aim to educate and ultimately transform how gift aids are prioritised, one donation at a time.
Contents:
What is gift aid?
There’s an additional gift to charity called gift aid that you can easily add to every charity donation you make.
HMRC gift aid is a government scheme that basically lets charities off the income tax that’s already paid through employment.
In layman’s terms, gift aid is a way for a charity to claim back money from the government - like a ‘top up’ for each donation.
Here’s gift aid explained by WWF in their comprehensive video
So how does gift aid work?
Gift aid donation reclaim can be made by charities through a few different methods’ of giving. These include:
Online donations
Regular giving direct debits
Smaller cash donations e.g. collection buckets (known as the Gift Aid Small Donations Scheme GASD)
Charity shop donations
How much is gift aid?
It’s easy to get confused about whether gift aid is 20% or 25% because both rates make regular appearances depending on what source you’re reading. In fact, both are right!
Gift aid is claimed on donations which have been made after the basic rate of income tax of 20% has been paid. So our £100 is actually £100 minus the tax we’ve already paid.
With the gift aid scheme, the government add up to 25% back on to the value of the donation, essentially creating a new ‘value’ of the donation that’s worth 25% more than the original amount donated.
It’s this ‘new’ amount that the charity then claims 20% gift aid on.
So say you’re a tax payer and you make a £100 donation to your favourite charity. This amount is then recalculated with the gift aid 25% and is now ‘worth’ £125 in the eyes of the government. The charity then claim gift aid at 20% on the £125.
Calculating gift aid
So that’s £125 x 20% = £25. And it’s that £25 that’s added back on to the original £100.
Does gift aid cost me anything?
No, gift aid is completely free to the donor.
Donors could just look at it as the gift of charity added with a redistribution of the taxes you’re paying any way. Gift aid can actually be financially advantageous to higher tax payers as explained below.
See the difference gift aid could make to your donation with this handy gift aid calculator HMRC approved.
Higher tax payers and gift aid
As aforementioned, when you calculate gift aid percentage it’s worth remembering that it only applies to the basic rate of tax.
For those in the higher tax paying bracket (who pay over the basic rate of tax of 20%), it’s possible to claim back the difference between that basic rate and the tax rate they actually pay.
A donor who pays 40% tax, can claim the usual 20% back on their gift that the charity takes. They can then personally claim extra gift aid tax return of the remaining 20%.
So for a donation of £100 from higher tax payers, the charity can receive £125 (as described above), while the donor can claim a further £25 in their tax return gift aid self assessment section.
For these higher bracket of taxpayers, the gift aid tax relief excess can be claimed back in their annual HMRC self-assessment tax form or by filling out a P810 form.
These high tax paying donors can choose to either keep this excess, or pass it on to charity. This element of the scheme is often criticised for being a loop hole for the wealthy to avoid paying their taxes in full, some even setting up charities to pay large amounts to, to then reclaim excess tax on.
Regular giving direct debits
It’s long been proven that face to face fundraising is one of the most effective ways to get regular donations for a charity. These long term consistent donations are what enable charities to predict their income and plan ahead.
Many charities are investing in professional fundraising agencies like Charity Link because time and again, we’ve proved it works.
Those donating by direct debit are raising in excess of £3.5bn for charities each year in the UK, while posing no risk to the charities who don’t pay unless the donors themselves do.
Using professional fundraisers to gain donations is so often more effective, since they’ve received excellent training and are completely compliant according to the fundraising regulator, which makes for a far more pleasant experience for all involved. Crucially, professional fundraisers are also more likely to ensure precious extra gift aid is added too.
Just check out the figures below for the impact that gift aid has on some of our charity partners.
Gift aid small donations scheme
The Gift Aid Small Donations Scheme (GASDS) was established so that charities and community amateur sports clubs (CASCs) could claim gift aid on small donations that were collected in cash, such as collection buckets or the trays used at religious services.
Because of the nature of collection (often cash), the donor declaration is not needed for GASDS, which means you don’t need the identity of the donor either.
This carries its own benefits since you don’t need to worry about storing gift aid declarations, or provide a receipt. It’s also really useful for smaller charities who rely on lots of smaller cash donations.
The GASDS limit for donations (including cash and contactless payments) must be £30 or less, be made by an individual and be used for charitable purposes.
Any GASDS gift aid reclaims must be made within two years of the end of the tax year in which donations were made.
Like regular gift aid, 25% can be claimed with a total of up to £2,000 (i.e. a total original donation value of £8,000).
In addition to the £2,000 cap on the GASDS claim, it also can’t be more than ten times the gift aid claim. This is known as the ‘matching rule’. For instance, if your charity has received £10 in gift aid donations, you may not exceed £100 worth of GASDS claims from the GASDS scheme i.e. £25.
Much like regular gift aid, no benefit can be given to the donor in exchange for the donation.
Provided the charity is registered with HMRC and have claimed gift aid within the same tax year, they can claim with the Gift Aid Small Donations Scheme.
By ensuring that all your donors have signed the gift aid declaration (and have claimed on that), a charity can increase the amount that they can claim from GASDS too.
Because claims made from donors using GASDS aren’t a tax relief as such, higher tax payers can’t claim onwards in excess of 25% like they can with gift aid.
Gift aid on charity shop donations
As well as monetary gifts, charity shops can also benefit from gift aid.
By asking donors to fill in a gift aid claim form when they bring in items to sell, the charity shop can claim 20% back on any goods sold.
To read more about what you can claim gift aid on click here
Who is allowed to give gift aid?
Basically any UK taxpayer is qualified to apply gift aid to their donation and add to their charities gift.
To do so, they must have paid income tax (or capital gains tax) in a tax year (6th April to 5th April) that’s equal (or more) to the tax that the charities they’ve donated to will reclaim in the same year.
“If all our supporters who have not yet done so opted into Gift Aid, we would be able to raise an extra £2.5 million. This would help send more nurses into patients' homes to provide them with the care that they need.” – Marie Curie website
How does a donor give gift aid?
Declaration form sample
Provided a charity is set up online to claim from the gift aid scheme, any tax paying donor can ensure that what they give gets the 25% top up.
To make it happen, all the donor needs to do is fill in a simple gift aid form.
The form asks that the person is a UK tax payer and to tick a box to declare that they understand that, should they pay less income tax or capital gains tax in the current tax year than the amount of gift aid claimed on donations, it’s their responsibility to pay the difference.
For professional face to face fundraisers like Charity Link it’s simply a case of asking potential donors in person to tick the box when signing up to regular giving. This is a process made easy by using the portable tablets that our fundraisers use when signing up new donors.
Who can claim gift aid?
The gift aid rules for charities are that any registered charity or community amateur sports club (CASC) based in the UK is able to claim gift aid. CASC gift aid often comes in the form of membership payments.
Charities can register for gift aid online regardless of their size.
How to claim gift aid
There are a few gift aid rules for charities for them to claim.
After gift aid registration, charities and fundraisers need an accurate record of all donations received. That should include details of the origins of that donation and confirmation that the donor is eligible to give gift aid.
There is a lot of HMRC gift aid guidance and support, but it does need a dedicated person or team to ensure claiming gift aid as a charity is done correctly.
This way the charity receives optimum financial support and should be able to successfully forecast finances.
The gift aid nominee can either be an organisation or an individual who’s authorised to submit gift aid forms, totals and other tax repayment claims on the charity’s behalf.
In short, claiming gift aid online is usually the easiest and most common way that charities claim gift aid.
To claim gift aid online, a charity would first need to sign up to an online HRMC service called ‘Charities Online’.
How to register for charities online gift aid
For gift aid claims and to establish any gift aid value, you must first log your organisation into their ‘HMRC Charities Online Services’ account.
If the charity doesn’t have one, they can register and set up an account from HMRC’s Online Services home page.
Once set up, donors will be able to make their gift aid claim online.
Gift aid rules
As well as the above, there are a few other basic rules of gift aid that must be followed:
Multiple donations and gift aid
As we know, to claim charity gift aid to a particularly charity, the donor must have filled out a Gift Aid Declaration form.
But what about if you donate to lots of charities, or want to claim from past donations?
Donations to each charity must be treated separately, so a new gift aid declaration form must be filled out for each new charity.
How far back can you claim gift aid?
To make a charity gift aid claim from the past for donations, you can go back as far as 4 years ago. However to do this, donors must fill out a multiple donation declaration form.
Paying enough tax
Donations can only been claimed if the donor has paid enough Income Tax or Capital Gains tax in that same tax year. Gift aid limits those who’ve not reached those tax requirements or who are unemployed, who won’t be able to give gift aid.
What happens if you gift aid but don't pay tax?
You might have to make up the difference in income tax to HMRC if you signed the gift aid form but aren’t paying tax. Sometimes HMRC will ask the charity to repay or not claim the tax that isn’t covered, but they could also ask the donor to cover the difference through their income tax (even if they aren’t working!).
Gift aid limit
If donations are worth more than four times the amount that the donor has paid in tax that year, they also won’t qualify for Gift Aid tax.
Receiving benefits
Should donors receive a specific benefit from you for making their donation, it will not be seen as voluntary by the government. It therefore won’t be possible to add gift aid.
The government website says:
“When someone makes a donation to your charity or CASC, you may want to give them (or people connected to them) a token of your appreciation - a ‘benefit’. As long as the value of the benefit does not exceed certain limits the donation will still qualify for Gift Aid. If the benefit value exceeds these limits the donation will not qualify for Gift Aid.”
Connected charities
For charities that are intertwined with others, the connected entities may share a £2000 limit on the GASDS.
For charities that share a community buildings, an additional £5,000 per building can be claimed, although there are a few restrictions on that, such as holding a minimal amount of events each year.
Payroll giving vs gift aid
Both payroll giving and gift aid benefits charities in much the same way.
It’s that while gift aid is given ‘post-tax’ payroll giving is basically done ‘pre-tax.
Payroll giving is essentially where you donate to charity directly from your wages prior to being taxed on them.
The payroll giving scheme is only available if an employer, private pension scheme or company is enlisted to the scheme.
Donations made through payroll giving, from limited companies, from shares, charity cards or vouchers or from membership fees are also not claimable.
Land, shares or property donation
Gifting land shares or property means the donor won’t need to pay tax either. Likewise, when someone gifts money to charities in their will, they also won’t be affected by inheritance tax on its value.
The complete government guide on gift aid rules can found here
Missing gift aid
For larger charities like homeless charity Crisis, tapping into gift aid could equate to around £7million a year, just in gift aid alone.
Terminal illness support charity Marie Curie say that if all their current donors who are not opting in with gift aid were to do so, it would increase their charities income by £2.5million.
So regardless of whether charity organisations are smaller or larger, you can see how gift aid for charities add a real extra boost which could make all the difference.
But sadly, there is a real shortfall in the actual action to get behind gift aid.
According to government research in 2016 showed that, although knowledge of the gift aid scheme was fairly widespread among donors 88%, 48% did not add gift aid to their donation.
That meant that of the £8.91bn that was donated to charity that year, £4.28bn did not have gift aid added, with charities losing out on a whopping £1.07bn.
So why don’t people give gift aid?
The generosity of the British public is undeniable, ranking 7th globally for charitable donations (albeit a drop since the pandemic). This in itself indicates people would want to see their money go as far as possible.
Read about the reasons people give to charity in our blog post
However, the same study showed that the top reason people gave for not opting in to give gift aids was that they were simply not given the opportunity to.
By that, they mean they were not given an HMRC gift aid declaration form to sign whether in paper form, whilst being solicited by a fundraiser or whilst making an online donation.
Other reasons for not opting in with charity gift aid included not being eligible (for example not being a tax payer) or not knowing about gift aid.
While online donations were the most likely to include gift aid, direct debit generated the highest gift aided value. 59% had gift aid added to payments made this way, which equated to £2.13bn worth of donated money in 2016.
The truth is, if you’re a charity and you’re not claiming gift aid, you’re missing out! Provided you have a person who can take responsibility for the administration side of things, we highly recommend making gift aid a priority in your donation strategy.
If you’re a donor and you really want your money to go the extra mile – make sure you sign the gift aid declaration!
For fundraisers, it’s essential to understand the importance of getting that gift aid declaration signed when you sign up new donors.
That’s not to say it’s always easy! There is much to remember when fundraising, so it’s important to keep practicing. As our fundraising central team manager Maurice says
“Even if it’s really challenging, there’s always opportunity to learn and to start again.”
Read the rest of Maurice’s interview here
Charity Link is a fundraising agency who pride ourselves on training fundraisers who have full knowledge and understanding of all aspects of fundraising.
We deliver passionate, ethical and professional fundraising in adherence with the Fundraiser Regulator and are members of the Chartered Institute of Fundraisers.
