What donations can charities claim Gift Aid on ?
Gift Aid can be claimed on donations of money made by an individual UK income taxpayer. It’s an easy way to help our charity maximise the value of donations.
To claim Gift Aid we must be recognised by HM Revenue & Customs (HMRC) as a charity and we need to ask donors to make a Gift Aid declaration.
Some payments made to charities which are not strictly gifts, like membership subscriptions, may be treated as donations for Gift Aid purposes.
If any donor or person connected to the donor benefits significantly from their donation, it doesn’t qualify for Gift Aid.
Charity membership fees:
To qualify for Gift Aid, charity subscription payments must be for membership only. They must not give members personal use of the charity’s facilities or services.
However HMRC conditions still allow members to:
- receive Newsletters to explain our charity’s work
- visit and view the work of our charity
- take part in activities that form part of our charity’s objectives
- Gift Aid can’t be claimed on a subscription payment paid on behalf of someone else. This is because it’s considered a gift to the person whose membership is paid and not to the charity.
The benefit rule:
When someone makes a donation, we might want to give the donor something in return to say thank you. This is known as a ‘benefit’. Literature that tells donors what our charity does, such as a Newsletter, doesn’t count as a benefit.
We keep a record of the Gift Aid donations we receive and all benefits that were given to donors as a consequence of their donation.
The declaration process:
For a Gift Aid Declaration to align with HMRC requirements it must include:
- the donor’s name and home address
- the name the charity
- identify the gift or gifts to which the declaration relates (for example, a particular donation or all donations)
- confirm that the identified gift or gifts are to be treated as Gift Aid donations
In addition, in order for a Gift Aid declaration to be valid, the charity must give and be able to demonstrate it has given an adequate explanation to the donor of the personal tax implications associated with making a Gift Aid donation including the responsibility to pay any difference. This explanation can be included on a Gift Aid declaration but can also be made separately.
Personal tax implications:
- Donors must be charged an amount of Income Tax and/or Capital Gains Tax, whether at the basic rate or some other rate, for the tax year in which Gift Aid donations are made at least equal to the Income Tax treated as deducted from the total of all their Gift Aid donations made in the same tax year. Donors who haven’t been charged sufficient tax to cover the Income Tax deducted from their Gift Aid donations are responsible to pay any difference.
- Even though a donor can’t receive payment of non-payable tax credits on dividends paid by UK companies, those credits can be used by the donor to cover the tax reclaimed by the charity on a Gift Aid donation. Tax deducted from bank and building society interest etc, and not repaid, can also be used to cover the tax reclaimed by the charity.
- The position of a taxpayer making Gift Aid donations can change from one tax year to the next. Charities should remind donors on a regular basis of the need for them to have paid sufficient Income and/or Capital Gains Tax on their donations. It need not be done in a separate letter to each donor, but could be included in any material sent to supporters, for example a newsletter.