Gift Aid lets a UK charity or community amateur sports club (CASC) reclaim basic rate tax on donations from UK taxpayers: 25p for every £1 donated, so a £100 gift is worth £125 to the charity. The donor must have paid at least as much income tax or capital gains tax in the tax year as the charity reclaims, and must have given a Gift Aid declaration. Charities claim from HMRC within 4 years of the end of the financial period in which they received the donation.
How Gift Aid works
A donation under Gift Aid is treated as having been made out of income on which the donor has already paid basic rate tax. The charity claims that tax back from HMRC. For the donor nothing changes at the point of giving; the cost is the same £100 whether or not the box is ticked.
The condition sits with the donor. HMRC's guidance for charities says the donor must "have paid at least as much in Income Tax or Capital Gains Tax in that tax year as you want to claim in Gift Aid". If the charity gets back more tax than the donor paid, HMRC may ask the donor to pay the difference. That is why the standard declaration wording warns donors to tell the charity if they stop paying enough tax. Non-taxpayers, including many pensioners whose income sits below the personal allowance, should not make declarations.
What the declaration must contain
The charity cannot claim without a valid Gift Aid declaration. HMRC's guidance says it must include:
- A description of the gift. For example, a single donation or all donations made from a given date;
- The charity's name. The charity or CASC the declaration is made to;
- The donor's full name. First name and surname;
- The donor's full home address. Including the postal code, with donors who do not live in the UK identified as non-UK donors;
- A taxpayer statement. Confirmation that the donor has paid the same amount or more in income tax or capital gains tax in that tax year, and agrees to Gift Aid being claimed.
HMRC publishes example declarations for a single donation, for multiple donations and for sponsored events. A declaration can be given in writing or orally, in person or by telephone. Charities must keep declarations for 6 years after the most recent donation on which they claimed Gift Aid.
Donations that do not qualify
Gift Aid is for gifts from individuals. HMRC lists a number of payments that cannot be claimed on, including:
- Company donations. Donations from limited companies are outside Gift Aid; companies get relief through their own tax computation instead;
- Payroll Giving. Donations made through an employer's Payroll Giving scheme;
- Payments for goods or services. Raffle tickets, event tickets and purchases are not gifts;
- CASC membership fees. These cannot be claimed at all;
- Gifts of shares. These have their own relief, not Gift Aid;
- Donations with excessive benefits. Where the donor gets too much back in return.
The benefit limits are set by section 418 of the Income Tax Act 2007. For a donation of £100 or less, benefits can be worth up to 25% of the donation. Above £100, the limit is £25 plus 5% of the amount over £100. All benefits received by the same donor from the same charity in a tax year must not exceed £2,500 in total. Free entry to a gala dinner, a print or exclusive event access all count towards these limits.
Making a Gift Aid claim
Charities and CASCs must be recognised by HMRC for tax purposes before they can claim. Donations received before recognition cannot be included. Claims are made through Charities Online, either from eligible software such as a donor database or by uploading a spreadsheet of donations. Claims covering more than 1,000 donations must use software. Form ChR1 remains available by post.
The time limit is 4 years from the end of the charity's financial period in which it received the donation. Many charities claim monthly or quarterly so cash comes in steadily and errors are caught early. Donation records should allow each claimed gift to be traced back to a declaration and a bank receipt, because that is what an HMRC Gift Aid audit tests.
The Gift Aid Small Donations Scheme
Bucket collections and contactless taps rarely come with declarations, so the Gift Aid Small Donations Scheme (GASDS) gives a top-up payment instead. It applies to cash or contactless donations of £30 or less, and no declaration or donor details are needed. The maximum top-up is £2,000 a tax year, which is the top-up on £8,000 of small donations. Charities with community buildings may get more.
Three conditions apply. The charity must have claimed Gift Aid in the same tax year. It must not have had a penalty on a Gift Aid or GASDS claim in the current or previous tax year. And under the matching rule, the small donations it claims on cannot be more than 10 times the Gift Aid donations it received in the same tax year. GASDS claims must be made within 2 years of the end of the tax year in which the donations were collected.
Higher rate relief for donors
Donors who pay tax above the basic rate get their own relief on the gross donation. HMRC's example: you donate £100, the charity claims Gift Aid to make it £125, and as a 40% taxpayer you personally claim back £25 (£125 × 20%). As an illustration on the same basis, an additional rate taxpayer at 45% would claim back £31.25. The claim is made through Self Assessment or by asking HMRC to adjust your tax code. Donations can also be carried back and treated as made in the previous tax year, which helps if you paid higher rate tax last year but will not this year. Our guide to tax relief on charitable donations covers the donor side, including gifts of shares and legacies, in more detail.
HMRC's own guidance is on claiming Gift Aid as a charity or CASC, and the benefit limits are in section 418 of the Income Tax Act 2007.
If your charity wants its Gift Aid process, declarations and claim history checked before HMRC does it, our accountants for charities can review the records and claims. Our charity accounts team can then make sure the income is recognised correctly in the accounts. See also accounting for charities.