UK taxpayers can receive tax relief on donations they make to UK registered charities through Gift Aid.
Charities are able to claim from HM Revenue & Customs, the basic rate of 20% tax on any donation you make to them. For example, if you want to donate £1,000 to charity, you only need to donate £800 and the charity is able to claim the remaining £200 from HMRC, as you have already paid 20% tax on your earnings (provided you are a basic rate tax payer). Charities are therefore able to claim this tax back as part of your donation. This system is known as the Gift Aid Scheme.
However, if you are a higher-rate tax payer, then an adjustment needs to be made on your tax return (if you are sent one) known as “extending the basic rate band”. This means that the basic tax rate limit of £35,000 for 2011/12 is extended by the amount you wish to donate. For example, if you wish to donate £1,000 to charity, then £1,000 will be added to the basic rate making it £36,000 that you pay 20% tax on.
It is also possible to carry back the Gift Aid donation to the previous tax year, so long as you have paid enough tax in that year to cover any donations you wish to make. The request for this carry back relief must be made at the same time as the completion of your Self Assessment Tax Return for the year in which you wish the claim to be included. You cannot change a tax return in order to carry back a donation. If you have already submitted your tax return, you must include the Gift Aid donation in the current tax year.
If you don’t complete tax returns, you can make a Gift Aid donation using a declaration form. One form is enough to include all donations you wish to make. It is important to record details of all your Gift Aid donations and you will need to keep HMRC informed if:
- You are a higher-rate taxpayer,
- You claim age-related personal allowance, marriage allowance or tax credits and,
- You want to carry back a Gift Aid donation.
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