Maximising the benefit of gift aid claims

Recap

Gift aid relies on the donor having enough of a tax liability to cover the additional amount claimed from HMRC by the charity or Yther qualifying organisation. Donations are treated as being made net of basic rate tax

Example. you make a donation of £80, the charity will reclaim a further £20 from HMRC. You will then be required to make a declaration that you are a UK taxpayer and that there is, or will be, sufficient tax to cover the amount recovered.

For basic rate taxpayers, that’s it, though technically the amounts should be declared on the tax return. For higher or additional rate taxpayers, further relief is available. For example, a higher rate taxpayer making a donation of £80 would be eligible for an extra £20 in tax relief in addition to the £20 claimed by the charity. If they have PAYE income, relief may be given via a PAYE code adjustment. In all cases, higher and additional rate taxpayers should include gift aid donations on their tax return.

In reality, much of this additional relief goes unclaimed. Keeping track of donations is key to ensuring opportunities to claim relief aren't missed.

Qualifying gift aid donations can reduce the amount of high income child benefit charge and the personal allowance abatement too.

People are often surprised to find that things like entrance fees to certain visitor attractions are qualifying payments for gift aid purposes. A brief form is completed at the time of booking, so these may not immediately spring to mind.

Sufficient tax

A further thing to consider this year is that induviduals may have a reduced tax liability due to the pandemic, for example those impacted by redundancy, furlough, etc. If the amounts claimed by gift aid are higher than their tax liability, the shortfall is payable to HMRC.

A good rule of thumb is that as long as total donations divided by four is less than the expected tax liability there should be no problem.

If there is likely to be a problem, the individual has the option to cancel the gift aid declaration for ongoing donations, e.g. memberships paid monthly. They can still make the donations, it’s just that the charity won’t be able to claim the enhancement from HMRC.

Planning - speed up relief

There is also an opportunity to accelerate relief. A claim can be made under s.426 Income Tax Act 2007 to treat a donation as if made in the previous tax year, for example if they were a higher rate taxpayer in the earlier year and now pay at basic rate, or don’t pay enough tax this year and did earlier. This could also help where coronavirus has impacted income, or simply act as a way to claim relief sooner to help with cash flow.

If the taxpayer wants to take advantage, they need to include the election on the initial return they file, and this must be filed on time. A carry back claim cannot be made on an amended return. They should therefore be aware of this when filing 2020/21 returns, as some may be looking to file early to take advantage of loss relief claims etc.