Tax Efficient Giving Gift Aid is now a powerful and tax efficient method of making gifts to charities. From the 6 April 2000, the rules relating to gift aid have changed. There is no longer a 'minimum amount' requirement. A payment to a charity, however small, can qualify as a gift aid payment. In order for it to do so, there has to be an 'audit trail' so that the Revenue can trace the person who made the payment and ensure that they had enough income to 'cover' the gift aid payment made. This means that the charity will ask you to complete a declaration so that they (and the Revenue, if they ask) know who made the payment. A declaration can be for a single payment or for a series of payments. Often, the amount is not specified on the declaration. The following is most important and is often misunderstood: The person making the gift aid payment must ensure that the tax they pay in the tax year exceeds the total of the tax reclaimed by all the charities to whom they have made gift aid payments in that tax year. For example, if the basic rate of tax is 22% and a taxpayer makes payments to charities totalling £780 in the tax year, the £780 is equal to a 'grossed up' amount of £1000, with tax paid of £220 (£1000 less 22% tax = £780 actually paid to charities). The charities are going to reclaim the £220 tax from the Revenue, so it is important that the taxpayer pays tax of at least £220 in that tax year. If the taxpayer fails to do so, they will have to pay the excess tax themselves. In the above case this would mean the taxpayer paying the £220 to the Revenue. What's so tax efficient about gift aid? In the above case, where a taxpayer with adequate taxed income makes gift aid payments of £780, the charity will receive the tax of £220 from the Revenue. Your gift of £780 is worth £1000 to the charity. And the higher rate taxpayer? The higher rate taxpayer also benefits personally. Their tax bill at the end of the tax year will be reduced by 18/78 (over 23%) of the net gift aid payment (the amount actually given). The benefit to the charity remains unchanged. In the above example, the tax bill will be reduced by £180. The taxpayer has thus given £600 (the gift of £780 less the tax repayment of £180) and the charity has still received a total of £1000, (the gift of £780 plus £220 from HMRC).
There are a number of other requirements if the gift is to qualify for gift aid. These are
rather detailed and might be described as 'common sense'. Please contact us if you would
like details. See How To Contact Us.
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