Gift Aid - The basics

Gift Aid is a way for charities or Community Amateur Sports Clubs (CASCs) to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate tax paid by the donor. It can increase the value of donations by a quarter at no extra cost to the donor.

Gift Aid is worth over £1 billion a year to charities and their donors.

How Gift Aid works

Tax relief for charities

Gift Aid is an easy way to help your charity or CASC maximise the value of its donations. Gift Aid allows you to reclaim basic rate tax (20% since 5 April 2008) already deducted from a donor's gift from HM Revenue & Customs (HMRC). You can work out the amount of tax you can reclaim by dividing the amount donated by four. This means that for every £1 donated, you can claim an extra 25 pence.

Tax relief for donors

If a donor is a higher rate taxpayer, they too can benefit from tax relief as they can claim back the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 20 per cent on the gross value of the donation – a total of 20 per cent. So if £1 was donated, the gross donation would be £1.25, so the donor could claim 25 pence of tax back (20 per cent of £1.25).

The donor must pay at least as much UK tax (Income Tax and/or Capital Gains Tax) as the amount of tax that you’re reclaiming in the year that you reclaim it. You must advise the donor of their requirement to pay tax and keep a record of your notification along with the donor’s confirmation – known as a Gift Aid declaration.

Gift Aid – The benefits

Gift Aid can only be claimed on gifts of money from individuals, sole traders or partnerships, in any of the following forms:

  • Cash
  • Cheque
  • Direct debit
  • Credit or debit card
  • Postal order
  • Standing order or telegraphic transfer

Gifts of money can be from a variety of sources, including:

  • Outright donations
  • Admissions to view charity property
  • Charity events
  • Charity auctions
  • Adventure fundraising events
  • Selling goods on behalf of individuals
  • Church collections
  • Educational trusts
  • Educational school trips

Your charity or CASC can give donors modest (low value) tokens of appreciation (called ‘benefits’) in order to acknowledge a gift but there are limits on their value.

The key principle to remember is that if any donor – or person connected to the donor – benefits significantly from their donation, then their donation(s) will not qualify for Gift Aid.

Gift Aid – The Tax claims

If you are a UK charity or a CASC you can claim back basic rate tax from HMRC on Gift Aid donations. You can also claim back tax deducted from other income such as bank or building society interest or tax deducted from income arising on gifts left to your charity in a will.

Step 1: Apply to HMRC for recognition as a charity or CASC for tax purposes

Step 2: Nominate an authorised claimant

Step 3: Apply for the HMRC Charities Online service through the HMRC website

Step 4: Summarise the donations received onto a spreadsheet in the required format (HMRC website has templates available) and complete claims using the HMRC Online portal.

If you are unable to access the internet, claims can be made on paper using form ChR1 which can be ordered by contacting HMRC Charities Helpline.

(CASC) must keep records of donations received, the Gift Aid declarations relating to those donations – including any that are cancelled – and records of any benefits you have given in return for donations.

You must be able to show that your Gift Aid repayment claims are accurate and that all the conditions of Gift Aid are met – for example, that donations are for gifts of money and that the value of any benefits given in return are within certain limits. The records must also provide an audit trail linking each donation to an identifiable donor who has completed a valid Gift Aid declaration.

If you don’t keep adequate records you may be required to pay back any tax reclaimed, with interest. You may also be liable to a penalty under the rules of Self Assessment.

Gift Aid declarations

Before your charity or CASC can claim tax on a donation made by an individual you need to:

  • Obtain a Gift Aid declaration from that donor to confirm that they want you to claim tax back for the donations specified.
  • Advise them that they will need to pay at least as much UK tax in the tax year in which they donate as the amount your charity or CASC will reclaim on their donation(s) and explain that taxes such as VAT and council tax do not qualify.

There is no set design for a Gift Aid declaration but, HMRC do provide three model declarations as a guide.

There is also a checklist of the minimum information that must be included in a declaration, if a charity decides to create and use its own format. 

As a minimum, all Gift Aid declarations your charity or CASC receives must contain the following information:

  • the name of your charity or CASC
  • the donor's name - as a minimum the initial of the first name and the last name in full
  • the donor's home address - as a minimum the house number/name and postcode
  • whether the declaration covers only the present donation or past and/or future donations as well
  • a statement or verbal confirmation by the donor that Gift Aid is to apply - on a written form or on a website, a tick box is sufficient 
  • confirmation the donor has been given an explanation that they must pay at least as much UK income tax and/or capital gains tax (for the year of the donation) as the amount that will be claimed by your charity or CASC and any other charities and CASCs they donate to.

You must also keep a record of declarations that have been cancelled by the donor – including the date the cancellation takes effect.

Records of cash donations

Linking cash donations to Gift Aid declarations needs care. If your charity or CASC receives regular cash donations from donors, for example in church collections, you might want to consider using an envelope scheme. This is where you can collect cash donations in envelopes so that they can show an audit trail linking the donation to the donor.

For one-off donations, your charity or CASC may choose to pre-print the Gift Aid declaration on the envelope for completion by the donor. If the donor is a regular supporter, your charity or CASC may already hold their Gift Aid declaration, in which case the envelope needs to show either the donor’s name or a unique identifier such as a reference number which can be cross-referenced to a donor register.

When the envelope is opened and the contents are counted, an official from your charity or CASC should record the amount on the envelope it came in, and in a donor record. You should keep the envelopes as part of your normal record keeping.

Records of benefits given to donors

You can give donors modest tokens of appreciation – called benefits – in order to acknowledge their gift, but there are strict limits on their value. Your charity or CASC should keep records of all benefits given in return for donations received and show how these relate to specific donors (individuals or companies). You should also keep a record of the value of the benefits you provide, including how you arrived at the value.

How long should you keep records?

The time limits for keeping Gift Aid declarations and Gift Aid payment records are different and depend on how your charity or CASC is treated for tax purposes. All CASCs and most charities will be treated as companies for tax purposes. You will only be treated as a trust if your charity was set up by a trust deed or a will.

Most charities and CASCs

If your charity is run as a charitable company – which most are – or you’re a CASC, you should normally keep charity records for at least six years after the end of the period for which your charity may be required to deliver a Corporation Tax return. So if you’re required to make a return for the period to 31 December 2012 the records must be kept until 31 December 2019. But you must keep the records for at least 12 months after you make your repayment claim, if that is a later date.

If HMRC asks you questions about your tax return or repayment claim, you'll need to keep the records until the enquiries are finished. In the case of Gift Aid declarations, donors may use the same Gift Aid declaration for more than one donation so you’ll need to keep the declaration until you’ve claimed tax back on the last gift made by that donor, and if you have Gift Aid declarations covering ongoing donations you’ll need to keep them permanently.

Charitable trusts

As a general rule you should keep your Gift Aid records, including declarations, for six years after the end of the tax year that your claim relates to, or at least 12 months after you make your Gift Aid claim if that’s a later date.

HMRC Gift Aid audits

HMRC makes limited checks before making any Gift Aid repayments. It selects a number of charities and CASCs for audit to ensure that the scheme is being used properly and that any repayment claims made are accurate. If your repayment claim is selected for a review, it does not necessarily mean that HMRC believes the claim is wrong or that there is suspicion about anything to do with the claim or your charity or CASC.

HMRC wants to help you to get things right and will help your charity or CASC to make further repayment claims if it is found that less tax has been claimed than was due.

However, charities and CASCs still need to be careful with their record keeping. If you have a control visit by HMRC they will only test a sample of your tax claims in the most recent tax year(s). Where errors are found they will estimate the total underdeclared tax based upon an assumption that there are similar errors in the unsampled tax claims for that year(s). So if there are a large number of errors in the claims that they sample, you could end up with a large tax bill. Luckily, HMRC will allow you to repair problem tax claims e.g. by obtaining missing Gift Aid declarations. However, if your records are still not 'up to scratch' when they subsequently visit, HMRC will then look into tax claimed in previous tax years.
We can provide a health check on your Gift Aid records to identify potential problem areas. We can also assist with repairing tax claims following a visit and negotiating with HMRC over tax demands.

Gift Aid Small Donations Scheme

From 6 April 2013, charities and CASC's are able to claim additional amounts under the Gift Aid Small Donations Scheme (GASDS). This scheme is to cover situations where donors are not able or willing to sign a gift aid declaration and can mean that an amount equivalent to the gift aid is able to be reclaimed on up to £5,000 of such gifts per year.

In order to qualify to claim under this scheme, your charity or CASC must meet the following conditions:

  • The charity or CASC must have existed for at least two complete tax years (6 April - 5 April) before the tax year of the claim. This is known as the 'start up period'.
  • The charity or CASC must have made a successful Gift Aid claim in at least two of the previous four tax years. There must not be a period of two or more tax years between those claims or between the latest claim and the year of the claim.
  • If the charity or CASC incurs a penalty relating to a Gift Aid or GASDS claim at any time, it will not be able to claim GASDS payments for the tax year in which that claim was made or for the next tax year.

For the GASDS, a small donation is a cash donation from an individual to a charity or CASC of £20 or less. The donation must be in bank notes or coins. Donations made by cheque, credit card, text or bank transfer do not count.

For more information contact one of our Charity Team for a chat.

Useful links

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